TalkTalk is reviewing options based on the Vodafone approach

TalkTalk has asked investment bank Lazard to review its options after several groups, including Vodafone, approached the British broadband company about possible deals, according to people with knowledge of the matter.

British telecom executives have long called for it greater consolidation in the domestic broadband market, claiming that the multitude of companies offering mobile and internet subscriptions created excessive competition, depressed prices and stifled investment.

The sector has suffered from weak yields and falling valuations in recent years, as highly competitive markets and regulatory pressures put pressure on sales and lower earnings.

Vodafone, the fifth largest player in the UK broadband market, has explored the possibility of striking a deal with TalkTalk on several occasions in the past, but has stumbled over questions about the value of the deal, according to people with direct knowledge of the matter.

TalkTalk was taken privately just 16 months ago by Toscafund, an asset manager run by pro-Brexit Tory donor Martin Hughes, for 97p a share, valuing the company at £2bn including debt.

The internet company was advised by its independent directors in 2020 to accept Toscafund’s offer as TalkTalk would require significant investments to scale, which would be difficult to achieve by remaining public.

Vodafone has been under particular pressure to revive its ailing business after it was revealed that Europe’s biggest activist investor, Cevian Capital, has acquired a stake in the company and is pushing for a structural overhaul.

Nick Read, the company’s chief executive, said he is targeting deals in countries such as the UK, Spain and Italy. But Vodafone ultimately missed out on a deal with Spain’s MasMovil earlier this year when the challenger group opted to merge with France’s Orange rather than buy Vodafone’s Spanish operations at the price the British telecoms group was asking, according to people who support the discussions knew .

In February, Vodafone also rejected an offer from Iliad and French billionaire Xavier Niel’s private equity fund Apax for its Italian operation, saying it was “not in the best interests of shareholders”.

TalkTalk’s latest annual report showed that its customer base had shrunk from 4.3 million broadband customers in 2019 to 4 million in 2021, a year with just 11 months instead of the normal 12, and also due to the impact of Covid-19 restrictions. Net debt increased to £972m from £950m in 2020.

Before the company was privatized, there was widespread speculation that it might be bought out by one of its broadband competitors in a bid to consolidate what many executives lamented about the overly competitive and “dysfunctional” telecoms market.

The company’s co-founder, Charles Dunstone, took over as CEO after Dido Harding resigned as CEO in 2017 following a malicious cyberattack that hit tens of thousands of customers. Dunstone supported the offer to take TalkTalk privately, which was conditional on him transferring his stake to a new private vehicle that would own the company, allowing him to retain his 30 percent stake.

TalkTalk was founded in 2003 as a subsidiary of Carphone Warehouse, a company Dunstone founded in the 1990s and then listed on the London Stock Exchange in July 2000.

TalkTalk, Vodafone, Lazard and Toscafund all declined to comment.

Additional reporting by Nic Fildes TalkTalk is reviewing options based on the Vodafone approach

Adam Bradshaw

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