BT is weighing up a potential takeover of the rival telecoms and broadband company TalkTalk, which is struggling amid financial difficulties and a customer exodus.
The UK’s biggest broadband provider is understood to have discussed the strategic possibility of buying TalkTalk. However, it is understood no approach has been made and no talks have been held and bankers have not been asked to draw up takeover plans.
TalkTalk, which was founded by Sir Charles Dunstone, is the UK’s fourth-largest telecoms group, with about 3.2 million customers. However, the group lost 400,000 customers in the 12 months to February, and last year Dunstone and other shareholders were forced to inject £235m to shore up its finances.
TalkTalk has struggled since it was taken private by Toscafund, a London-based investment firm, in a £1.1bn leveraged buyout that added £527mn of debt to the telecoms group’s balance sheet in 2021. It now has about £1.2bn in debt on its balance sheet.
A BT-TalkTalk tie-up would give the combined group control of about 36% of the UK broadband market.
“Companies are always looking at rivals in their sector, particularly distressed assets,” said one City source, discussing the potential takeover plans, which were first reported by the Telegraph.
In recent weeks, it has emerged that TalkTalk has fallen behind on payments with supplies and partners including Openreach and CityFibre. According to estimates from New Street Research, TalkTalk pays its broadband suppliers more than £60m each month.
The Salford-based company cut 350 jobs last year as part of a wider plan to strip £120m out of the business. If a takeover offer from BT were to crystallise, it could face objections from rivals and an investigation from the UK competition regulator.
“It would be an understatement to say that TalkTalk faces a difficult and uncertain future,” said James Ratzer, an analyst at New Street Research. “This is clearly an extremely high-risk investment. Past discussions have largely focused on Vodafone and VMO2 [Virgin Media O2] … but we now believe BT could enter the fray in some potential form increasing the chance of a potential deal.”
Virgin Media O2 has also previously considered making an approach for TalkTalk.
BT and TalkTalk declined to comment.
