Carphone To Buy Tiscali U.K.
Creating U.K.'s biggest residential broadband providerLONDON -- British telecoms and retail group Carphone Warehouse has agreed to buy the British assets of Italian Internet service provider Tiscali for £236 million ($355.6 million) in cash, free of debt.
Tiscali, with more than €600 million ($805.2 million) in debt, said separately its board of directors had approved key terms of a debt-restructuring plan using the proceeds from the sale and a possible capital increase of up to €210 million ($281.8 million).
Carphone's acquisition of Tiscali U.K., which has been on the block since last year, will make it the U.K.'s biggest residential broadband provider, overtaking Virgin Media, and the second-biggest including business customers after BT.
Carphone will acquire 1.45 million subscribers to add to its 2.8 million. BT has 4.7 million and Virgin 4 million.
Citigroup analyst Andrew Lee said the price of about £150 ($226) per subscriber Carphone was paying was about 10% more expensive than acquiring subscribers in the market.
"But it is cheaper than recent comparable deals and the only way to significantly increase scale, given U.K. broadband penetration of circa 65%," he wrote in a note on Friday.
Carphone said it would fund the acquisition entirely from existing debt facilities, and expected it to close by end-June, subject to competition authorities and Tiscali's obtaining formal approval to restructure its debt.
Meanwhile, Tiscali chairman and chief executive Mario Rosso told a conference call the debt restructuring plan would be finished by June 5, and would be presented along with a new business plan.
Key creditors Intesa Sanpaolo and JP Morgan jointly hold about €350 million ($469.6 million) in debt, he said.
Tiscali, Italy's third-biggest ISP by market share, suspended long-term debt payments in March. It said on Friday it expected company founder Renato Soru to back the capital increase and to underwrite part of it.
Carphone said it saw an immediate benefit of 10% to its earnings per share for its fiscal year to March 2010, and said the acquisition would enable its TalkTalk brand to realize annualized savings of £40 million ($60.3 million) to £50 million ($75.3 million) by March 2011.
"We are delighted to be acquiring Tiscali's U.K. business ---we know the business well and the fit with TalkTalk is perfect," Carphone chief executive Charles Dunstone said in the statement.
Analysts reckoned Tiscali could have fetched twice the price a year ago, but its debt problems, uncertain future and global economic woes have undermined its value.
Pure-play ISPs have been struggling for years as services provided by others such as Apple's iTunes, auction site eBay or Google attract consumer spending while the access provided by ISPs has been reduced to a commodity.