18th Jul 2022 14:32
(Alliance News) - BT Group PLC's success could be at risk should the Virgin Media O2 combination acquire former London listing TalkTalk, analysts at UBS said on Monday.
BT could lose out on about GBP500 million of annual revenue, the Swiss bank said. A deal to buy TalkTalk could be good news for Virgin Media O2's co-owners Liberty Global PLC and Telefonica SA.
Virgin Media O2, an equally-owned joint-venture of Spain's Telefonica and the US's Liberty Global, has tabled an indicative offer to buy UK broadband provider TalkTalk, Sky News reported on Friday.
The talks are at a preliminary stage but are non-exclusive, Sky said. The offer values TalkTalk at GBP3 billion, it said.
A deal could threaten the fortunes of BT's wholesale offering, which provides services to communications firms, TalkTalk included.
A VMO2 purchase of TalkTalks could mean a "risk of lost of wholesale broadband revenues longer-term" for BT.
"Based on historic results and prior research, we estimate TalkTalk pays around GBP500m per annum in wholesale broadband costs, the vast majority of which is spent with BT/Openreach. We estimate, this will rise to over GBP650 million pa in the longer-term given indexation and upgrades to faster broadband speeds," UBS added.
"We see a risk of BT/Openreach losing GBP350-GBP500 million pa of wholesale revenues longer-term were a VMO2/TalkTalk merger to go ahead and receive regulatory approval."
UBS said the pathway to regulatory approval could be difficult, however.
TalkTalk has roughly a 15% broadband subscriber market share, with VMO2 around 20%, UBS added. This would make a tie-up a joint-market leader, with BT also having a 35% share of the market.
Analysts at investment bank Jefferies also said regulatory hurdles could prove a sticking point.
"We also raise the question of how such capital allocation would rank within VMO2's other opportunities, in particular the mooted fibre rollout to 5-7 millio UK households," Jefferies added.
TalkTalk was a FTSE 250 listing in London until being taken private early last year in a GBP1.11 billion takeover by Toscafund Asset Management LLP and Penta Capital LLP. Toscafund previously had been a 29% shareholder.
BT shares were 5.5% lower at 179.73 pence each in London on Monday afternoon.
By Eric Cunha; [email protected]
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