VMO2 and CityFibre mooted as potential KCom suitors

According to a Telegraph report (paywall) on Sunday, the Australian investment bank has hired some advisors from another investment bank – PJT Partners – to carry out a strategic review of KCom.

Apparently there are some interesting rumblings regarding the potential asking price.

The paper cites unnamed analysts who supposedly claimed in private that today, KCom would fetch a much lower sum than the £627 million paid by Macquarie in 2019.

It's interesting because KCom was in some trouble back then. In late 2018, before it went on the block, the Hull-based fixed-line provider issued a profit warning, cut dividends and revealed that debt had jumped by 10%. KCom was publicly-listed at the time, and the news sent its shares tumbling by 36%.

Sharks soon began to circle, including Virgin Media O2 (VMO2) – which was just Virgin Media back then – and a pension fund called the Universities Superannuation Scheme (USS).

After Macquarie Infrastructure and Real Assets (MIRA) threw its hat into the ring, the UK Takeover Panel opted to hold an auction, which MIRA promptly won.

Since then, KCom has ploughed some £200 million into upgrading and expanding its fibre networks, growing its footprint beyond Hull to North Lincolnshire, increasing peak throughput to 10 Gbps, and generally reaffirming its position as the region's dominant provider.

According to the Telegraph, its network currently passes 300,000 premises, while KCom's own website says that it currently serves around 150,000 consumer and business customers. It also has a wholesale operation offering FTTP, voice and dark fibre services, among others, to retail operators.

The Telegraph report claims KCom's earnings are somewhere in the region of £50 million.

Taking all that into consideration, it's quite striking that KCom's price tag is expected to be lower, and probably says more about the current state of the economy, the maturing altnet scene and the competitive pressure that comes with it, than it does about KCom's recent track record.

The rumour mill claims that VMO2 and CityFibre would be among the potential suitors if KCom is put on the block.

CityFibre only plays in the wholesale market, and hasn't shown any interest – publicly at least – in changing that. This being the case it would probably only want KCom's network and wholesale business, not the retail arm, which might complicate things. That said, the Goldman Sachs-backed altnet doesn't shy away from a bit of M&A, its most recent purchase being that of smaller rival Lit Fibre in March.

VMO2 might prove to be the more likely suitor. Its parents Liberty Global and Telefónica in February announced plans for NetCo – a fixed-line wholesaler with the scale to compete with incumbent Openreach. It would presumably also be comfortable with integrating KCom's retail operation.

It will be the end of an era if KCom is gobbled up by a larger, nationwide player, having been operating as a regional incumbent in one form or another for around 120 years. Whatever happens, KCom will always be remembered as the telco that kept Openreach out of Hull.