This time, the reports were true: Carphone Warehouse has confirmed a deal to buy Italian telco Tiscali’s UK ISP business for a knock-down price of £236 million. Tiscali’s 1.45 million subscribers will be added to Carphone’s TalkTalk ISP business, making it the UK’s biggest residential broadband provider with 4.25 million subscribers, and the second largest overall after BT (NYSE: BT). The deal was funded entirely “from Carphone’s group debt facilities” and barring an intervention from EU competition authorities it will give a shot in the arm for Carphone as it moves to de-merge its ISP and retail businesses and put an end to troubled Tiscali’s fraught and long-running attempts to sell its UK assets and ease its debt worries.
Carphone CEO and founder Charles Dunstone said in a conference call with journalists Friday morning: “This has been a very, very long-running saga, for over a year now we’ve been looking at this. And we’ve always been very clear that we knew the price we were happy to pay and we weren’t going to go over that… So we’re very pleased that common sense has prevailed.” Sky, too, had been in the running. Another snag, as Dunstone pointed out, is that Tiscali will have to re-negotiate its banking covenants before any deal can go through, but Dunstone is confident that will happen by the end of June. The Tiscali brand could be on the way out in the medium to long term, as Carphone looks to puts its marketing weight behind the TalkTalk brand to take on BSkyB (NYSE: BSY), Virgin Media (NSDQ: VMED) and BT. More after the jump…
– IPTV caution:: It’s a leg-up in the into the IPTV market — but Dunstone is cautious on web TV. He said it was “top of my list of things I want to understand” but added that Tiscali’s IPTV division “seems to lose a lot of money at the moment which is not something we’re keen to continue”. He said that as a group Carphone has been “reasonably sceptical on that and we will need a lot of convincing” that there is a business model behind web TV. Tiscali has struggled to build market share past its current 100,000 web TV subscribers. Dunstone also confirmed that Tiscali’s ISP-facing portal would survive the merger and that it represented “a very interesting opportunity”.
– Discounted price: It’s a good deal for Carphone, representing a big reduction in the £450 million Tiscali was reportedly asking for in negotiations with Carphone last year. BSkyB ruled itself out of the running after saying no to a similar price. Dunstone said: “We were very patient and continued a dialogue where others didn’t. We have the most obvious synergies and easiest footprint to overlap.” Though he admitted negotiations with shareholders and banks from both sides had been “difficult at times”. As for the parent Tiscali company, the cash could be the lifeline it needs to renegotiate its debt, two months after its own auditor Ernst and Young declared debt had “fundamental uncertainties” over the future of the company.