Potential Takeover Battle Emerges as JD.com Considers Bid for Currys

Currys, a major player in the global retail landscape, may be on the brink of a takeover battle.

Chinese e-commerce giant JD.com has announced its contemplation of a potential bid for Currys. The prospect of this bid comes in the wake of Currys' recent announcement that it had rejected a £700 million takeover proposal from U.S. investment firm Elliott.

JD.com clarified that it is currently in the early stages of evaluating the possibility of acquiring the retailer, emphasizing the preliminary nature of the discussions. Currys' share price experienced a notable surge of over a third, closing at 64p on Monday in response to the news. The retail giant, boasting over 800 stores globally and a workforce of 28,000 employees, operates approximately 300 stores in the UK, employing 15,000 staff.

Reports indicate that talks between Currys and JD.com regarding a potential transaction commenced towards the end of the previous year. JD.com's interest in expanding internationally, driven by weaker demand in its domestic market, fueled discussions about the potential acquisition. However, JD.com stated that there is "no certainty" regarding the final decision to make a bid.

Currys' rejection of Elliott's offer, priced at 62p per share, raised speculation that Elliott might return with an increased proposal. Under UK takeover regulations, JD.com has until March 18 to present a formal offer or withdraw from the potential deal, while Elliott faces a deadline of March 16.

Despite Currys' share price experiencing a decline of over a third in the past year, closing at 47.08p before news of the takeover interest, it is acknowledged at the board level that the company's valuation has been at a steep discount. Critics argue that the decision to close 35 airport stores in 2021, including locations at Heathrow, might have been a strategic mistake.

The constant competitive pressure for Currys, evolving through various name changes from Dixons to Dixons Carphone and then to Currys, has been Amazon. Former employees highlight the importance of matching Amazon's prices to prevent customers from visiting Currys' stores only to order from Amazon via their smartphones.

Currys' operations in Nordic countries, operating under the Elkjøp brand, have faced challenges in recent years. The increasing cost of living has impacted retailers, leading to a 3% decline in underlying sales over the crucial Christmas trading period. Despite this, the company raised its profit forecast for the year, citing cost-cutting measures and improved profit margins on certain services.

Emily Salter from GlobalData notes that despite losing market share in recent years, Currys remains the market leader for electrical goods in the UK, making it an attractive acquisition proposition. The company's foray into installation and support services, expanding its Care & Repair business, is seen as a substantial and growing aspect of its business. The iD Mobile virtual mobile network has seen a 30% increase in subscribers over the past year, reaching 1.6 million.

Analysts at Investec suggest that the Care & Repair business alone could be valued at £667 million, while the mobile business could be worth about £500 million. Ben Hunt, equity retail analyst at Investec, underscores that Currys has already undertaken significant cost reductions, cutting £300 million from its annual costs. This efficiency makes it an appealing prospect for potential suitors.

Observers in the industry note that UK firms, including Currys, are currently undervalued. Erik Hirsch, co-chief executive of the U.S. private equity firm Hamilton Lane, points out that the UK is drawing increased attention from investors looking for value. With the UK offering potential for recovery in the wake of easing price rises and improving real incomes, companies like Currys become attractive targets for private equity firms seeking undervalued businesses.

As the potential takeover drama unfolds, the retail sector's dynamics and the strategic positioning of companies like Currys in the evolving market landscape are poised to shape the industry's narrative in the coming months.