TalkTalk in £1.1 billion takeover talks

• UK broadband service provider agrees to takeover discussions
• News boosts share price but offer is much lower than previous bid
• TalkTalk’s terrible customer service reputation can’t be helping its cause 

UK competitive broadband service provider TalkTalk is holding discussions about a potential takeover worth 97 pence per share, which values the operator at about £1.1 billion in total. 

The potential buyer is Toscafund Asset Management, a hedge fund that is the operator’s third largest shareholder (29.09% holding), which wants to take TalkTalk private: To take its offer any further, Toscafund wants the support of the operator’s chairman, Charles Dunstone, the second largest shareholder (29.86% holding). 

The news boosted TalkTalk’s share price by almost 17% to 97.15 pence. In late July the company’s stock had sunk as low as 69.5 pence. 

According to Sky News, Toscafund last year made a previous takeover offer valued at 135 pence per share, which the TalkTalk board rejected. 

In its most recent full financial year to the end of March this year, TalkTalk, which has 4.2 million fixed broadband customers, reported revenues of just over £1.5 billion, down slightly from the previous year, and an operating profit of £197 million, fourfold better than the prior fiscal year. 

The operator is regarded as a low-price broadband alternative to the likes of BT and Virgin Media and is infamous for its poor customer service. The most recent customer satisfaction report from UK regulator Ofcom showed how badly TalkTalk compares with its rivals in terms of broadband customer service.

Ofcom noted in its update: “TalkTalk customers were less likely than average to be satisfied with their overall service and with the reliability of their service. They were also less likely than average to recommend their provider to a friend, and less likely than average to be satisfied with how their complaint was handled.”

With broadband becoming an ever-more important service in these days of homeworking, Toscafund might want to consider imposing a new customer service strategy it its bid is successful. Toscafund, though, is better known for being founded and controlled by one of the most aggressive fund managers in the finance sector, Martin ‘The Rottweiler’ Hughes, so investing in customer satisfaction might not be top of any agenda.

- Ray Le Maistre, Editorial Director, TelecomTV