Action stations for Dixons bid?

Dixons is preparing to bid for Action Computer Supplies, the big but ailing direct marketing computer reseller, the Financial Mail on Sunday reports.

The electrical retail giant looks like it wants to do a friendly deal, as it has made 'friendly approaches to Action', the newspaper says. Action, a B2B supplier, would fit in nicely with Dixons PC World Business direct marketing operation.

Dixons last month announced its intention to become Britain's biggest supplier of computer goods and services to small businesses by 2004. Business sales already account for £400m of Dixons turnover, according to trade paper Microscope.

Action's market cap has dwindled to a humiliating low of less than £7 million, on the back of some nasty profit warning surprises. At a valuation like this, the company is better off being owned by someone else - or, less likely, taking itself private.

Last year the company lost £6.7m on sales of £276m.The company says that £50m-worth of sales were made over the Internet.

Action could also further Dixons' growing European ambitions, as it has it has a fairly large business in Spain.

Action has effectively been up for sale since 1999, when it was jilted at the altar by Insight Enterprises, the giant American direct marketer. Insight walked away, after Action's profitability took a sudden nose dive in the middle of due diligence.

Insight is already active in Europe, on the back of a couple of acquisitions. Last week the company announced its choice of Sheffield, UK as the choice of its European headquarters. The Financial Mail on Sunday speculates that Action could be on the table again for Insight - especially now that the British company's share prices is just a tenth of when it last made a bid approach.

But considering how Insight walked away from an agreed deal last time around, creating huge embarrassment and (at least temporary) instability for its supposed acquisition, it would seem difficult for this company to earn the trust of Action's board again. ®

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