Story from The Telegraph:
Virgin Media O2 (VMO2) has revived takeover talks with TalkTalk as the struggling broadband provider faces a looming cash crunch.
Executives at the two companies have held discussions over a potential deal that would see VMO2 take control of TalkTalk’s consumer division.
It comes two years after VMO2 and TalkTalk abandoned plans for a full takeover that could have been priced at up to £3bn including debt because of market and regulatory uncertainties.
But a smaller deal is now back on the table as TalkTalk breaks up its business ahead of a crucial debt refinancing this year.
TalkTalk’s consumer division serves around 2.4m residential customers. It recently acquired around half a million Shell customers from Octopus energy.
A deal would allow VMO2 to expand its retail customer base and build its presence at the value end of the market.
Any tie-up would also likely involve a wholesale agreement back to TalkTalk, though VMO2 would ultimately look to shift the customers over to full-fibre as it builds out its network.
Industry sources warned talks were at an early stage and there was no guarantee a deal would be agreed.
TalkTalk, which was founded by Sir Charles Dunstone, is grappling with a £1.1bn debt pile and gearing up for a sharp rise in borrowing costs when it refinances its debts this year.
In its latest accounts, the company acknowledged there was “material uncertainty” ahead of the refinancing that “may cast significant doubt” over its ability to continue.
Bosses have warned that if it has not secured refinancing by August 2024 it will be at risk of breaching its debt covenants.
The squeeze on finances has forced TalkTalk to start carving itself up after executives admitted the parts were worth more than the whole.
TalkTalk, which was taken private by Toscafund in 2020, has already sold off its business division to a special purpose vehicle controlled by its main shareholders for £95m.
The company is also in talks with US-based infrastructure fund DigitalBridge about selling a stake in its wholesale operations, and plans to spin the consumer division out of the group following refinancing.
However, the cash crunch has taken its toll on TalkTalk’s customer base. The company shed 100,000 retail customers in the first quarter of 2023 alone as it slashed sales and marketing spend by 40pc.
TalkTalk has also extended its credit terms with some suppliers to as much as 300 days as it tries to shore up its cash reserves.
TalkTalk’s consumer base could attract interest from other industry players including Vodafone, though any such deal would likely face greater regulatory scrutiny given the two companies serve similar parts of the market.
VMO2 and TalkTalk declined to comment.