UK ISP TalkTalk has confirmed it is considering a takeover offer from Toscafund Asset Management that values the broadband and TV provider at £1.1bn.
Toscafund Asset Management, which already owns 30.5 per cent of TalkTalk, is aiming to pay 97 pence per share. That's a premium of 13.5 pence on the previous day's closing price of 83.5, but still short of the 135 pence-per-share reportedly offered last year.
News of the purchase sent TalkTalk's share price surging. At the time of writing, it is trading at 97.7 pence – slightly higher than the offer made by Toscafund.
It is understood that any deal will require the approval of TalkTalk founder Charles Dunstone, who owns 29.7 per cent of the company.
Toscafund manages assets worth £4bn. It owns sizable portions of clothing brand Ted Baker, logistics and aviation firm Stobart Group, and independent healthcare provider Circle Health.
TalkTalk is the fourth-largest UK ISP by subscriber, trailing BT (and associated companies, EE and PlusNet), Sky Broadband, and Virgin Media. In addition to offering fixed-line connectivity, it also offers paid TV services, as well as an MVNO based on O2's network.
Dunstone is believed to have rejected the first offer made in 2019 by Toscafund. Although this new deal is smaller, it comes at a turbulent time for the broadband industry, thus raising the possibility he may accept.
BT currently trades at 105.9p – less than half its 52-week high of 212.25p. Vodafone similarly trades at 111.88 pence – almost two-thirds of its year-long high of 169.46.
Adding to the pressure, the residential and business telecommunications sector continues to consolidate.
Back in May, Liberty Global and Telefónica said they would merge their respective UK telecoms businesses, Virgin Media and O2.
Analyst Megabuyte said of the potential deal: "Toscafund... has, one assumes, decided to swoop with TalkTalk shares at around all-time lows, and well down on the just over 400p achieved in 2015, and with the company valued at little more than an incumbent telco [BT].
"The main question therefore is whether Toscafund's approach flushes out other bidders, both institutional/private equity as well as strategic buyers. The most likely of the latter would be Vodafone."
Consolidation allows providers to increase their subscriber base, but also add additional product lines – and cost "efficiencies", as they euphemistically call them – that makes them more attractive. Using the example of Virgin Media and O2, the combined business would have operations spanning fixed-line, mobile, and paid TV. ®