Broadband ISP TalkTalk UK Rejects £1.5bn Bid by Key Investor

Low cost UK internet provider TalkTalk is confirmed to have quietly rejected a takeover bid by one of its biggest investors (Toscafund) last year, which would have valued the entire company at an impressive £1.5bn or 135p a share (roughly equating to double its current share price of around 75p).

The bid itself would have been tabled at a time when TalkTalk still owned their own Fibre-to-the-Premises (FTTP) network in the city of York, including several other towns, under their wholesale FibreNation division, but this has since been sold to Cityfibre for c.£200m. As a result the ISP has largely returned to its roots by piggybacking off somebody else’s underlying network infrastructure (i.e. Openreach and Cityfibre).

Suffice to say that the proposed bid by the asset management firm, Toscafund, would in the current climate seem to be more than reasonable. However, the ISP’s board is understood to have rejected the bid because, according to Sky News, it “failed to provide sufficient value for investors.”

On the surface this might seem odd, but it’s important to remember that we don’t know precisely when the bid was tabled and that’s crucial because TalkTalk’s share price spent much of 2019 going up and down like a yo-yo. At its peak in May 2019 the ISP returned a price of around 127p a share, but at their lowest in February 2019 they were valued at just 96p and, since the COVID-19 crisis, things have only got worse.

The Toscafund itself is headed by investor Martin Hughes, who at the time of last year’s bid is understood to have held a 19% stake in the broadband provider. Since then the asset manager has increase that stake to 29%, which puts them almost level pegging with TalkTalk’s Founder and Executive Chairman, Sir Charles Dunstone.

Sky has speculated that TalkTalk may thus become the centre of a new bidding war, although it’s worth considering that much of the future battleground in the UK is likely to centre on consolidation among alternative “full fibre” networks, which is something that the ISP has already given up. In that sense TalkTalk’s most strategic value is in its customer base, but whether or not that alone is worth the asking price is another matter.

A Spokesperson for the Toscafund said:

“Toscafund continues to evaluate strategic options for all the companies within its portfolio, particularly those where the London stock market fails to correctly recognise their prospects and strategic optionality, as is clearly the case at TalkTalk.

Toscafund is aware that UK broadband fibre and mobile participants are undergoing a phase of consolidation with all the benefits that will bring, and believes that the 135p-per-share valuation of 2019 represents a deep line in the sand, given that TalkTalk is in a better condition in 2020 than it was in 2019.”

Officially TalkTalk has declined to comment.