Shares in Dixons Retail and Carphone Warehouse soared yesterday after the owner of Currys and PC World said it was discussing a possible multi-billion pound merger with the mobile phone retailer.A combination of the two chains would create an enlarged group worth about GBP3.5 billion, although both firms stressed that the talks were at an early stage and there was no certainty that a deal could go through.Rupert Eastell, head of retail at accountant Baker Tilly, said: "This proposed merger offers more obvious advantages for Dixons, who would benefit from the mobile technology expertise and customer service ethos of Carphone Warehouse, in addition to new 'click and collect' opportunities. Carphone, on the other hand, is set for steady growth, it is very focused on store profitability and has a model that works, so it doesn't appear to have so much to gain."Dixons, headed by chief executive Sebastian James, has more than 900 stores across Europe and saw underlying sales grow 4 per cent to GBP8.2bn in the year to the end of April as it benefited from the demise of rival Comet.The group has been hit by tough trading in southern Europe, but it recently sold its operations in Turkey and offloaded its troubled Pixmania online retailing business to focus on the UK and Scandinavia.Retail analyst Nick Bubb said: "In a world of connected devices, Dixons is under-exposed to the key area of mobile and smartphone retailing, and it is known that they were looking at the area. It is a bold move for Dixons; it is slightly harder at this stage to see what's in it for Carphone."Revenues at Carphone jumped 1 1.5 per cent to GBP3.7bn in the year to the end of March and the retailer last month struck a deal with Samsung to operate more than 60 stores across Europe for the Korean technology giant.The group was founded in 1989 by chairman Sir Charles Dunstone and has more than 2,000 stores across Europe. Last year it took full control of its branch estate by paying GBP471 million to buy out former joint venture partner Best Buy after plans to build a chain of European megastores with the US retailer failed to make headway.Analysts said any deal with Dixons would hinge on the stance taken by Dunstone, who remains its largest shareholder with a 23.5 per cent stake. Dixons ended the day up 6.7 per cent at 50.3p. Shares in Carphone, which is led by chief executive Andrew Harrison, closed 8.8 per cent higher at 333p. Under City takeover rules, the two firms, which are understood to have explored a tie-up in 2011, have until 24 March to confirm whether they will be pressing ahead with a merger.In a joint statement, they said: "The two companies are in preliminary discussions regarding a possible merger of Dixons and Carphone Warehouse. These discussions are at a very preliminary stage and there can be no certainty that a transaction will be forthcoming."In 2010, Dixons formed a partnership with Phones4U, which saw the Carphone rival open concessions in more than 150 Currys and PC World branches. Phones4U, founded by John Caudwell in 1996 and now owned by private equity firm BC Partners, declined to comment on whether the proposed merger would affect the tie-up.