TalkTalk bidder asks Openreach to waive UK wholesale broadband charges

The lead bidder, Epiris, for part of the debt-ridden TalkTalk Group, which is now in the final stage of its turbulent efforts to dispose of both their consumer broadband ISP business and the PXC (PlatformX Communications) wholesale business, has reportedly asked network supplier Openreach (BT) to waive several months of payments to support a rescue deal.

Just to recap. Private equity firm Epiris have been attempting to secure a deal for TalkTalk’s wholesale-focused PXC business since Octopus Investments retreated from an earlier bid. Epiris is also in the middle of a separate £1bn+ takeover bid for London-listed business ISP Gamma Communications (here), which if successful could potentially share substantial financial synergies with PXC.

Meanwhile the TalkTalk Group, which is being advised by PJT Partners, are understood to have appointed Alvarez & Marsal (A&M) to help dispose of both their consumer and wholesale businesses using a pre-pack administration process. TalkTalk’s consumer business is also strongly linked to PXC’s wholesale products, thus any deal for one side of the business or the other would need a complementary agreement.

However, the focus today is on Epiris’ bid for PXC, which is said by Sky News to be facing a challenge due to PXC’s now imminent requirement for paying a significant bill to Openreach for provision of their UK network services (broadband, Ethernet etc.) to the TalkTalk Group. Epiris is now understood to have asked the BT Group to “waive or write off several months of payments” from PXC to Openreach – said to be worth over £100m – in order to allow their rescue deal to complete.

Network access provider Openreach would naturally be well within their rights to say no, although much will depend upon the structure of what Epiris has proposed. Not to mention that Openreach will need to consider how much it might lose were the Group to collapse early next week. Ultimately none of this is Openreach’s fault and they’re being somewhat asked to carry the can for another company’s poor management.

On top of this there are likely to be some political pressures, which stem from the fact that PXC are a key supplier to thousands of vulnerable customers as well as hospitals, doctors’ surgeries and other areas of Critical National Infrastructure (CNI). But the reality here is that, even if the Group did collapse, a solution is almost certain to be found that keeps c.1.6 million customers connected. The question is more over the survival of everything else.

As for TalkTalk’s consumer business, the expectation is currently still that existing investor Ares Management will take ownership of the business, although Vodafone and Opus Broadband are understood to still be engaged in talks. But as mentioned earlier, the outcome of that is very much linked to PXC and both share the same problem with payments to Openreach.

The next few hours or days will be pivotal.