VMO2 reportedly prepping bid for TalkTalk's consumer unit

So says a Telegraph report (paywall) that claims the two sides have held takeover talks regarding TalkTalk's consumer division.

According to the report, the unit serves to 2.4 million residential customers, including half a million recently-acquired Shell broadband customers from energy provider Octopus.

Interestingly, this number is markedly lower than the 3.9 million fibre and broadband customers disclosed in TalkTalk's most recent annual report. Either this is a slightly different metric, or the Telegraph has seen some more recent figures that show TalkTalk is shedding customers at an alarming rate.

Neither Virgin Media nor TalkTalk were prepared to comment on these new rumours when contacted by Telecoms.com.

In July 2022, reports claimed VMO2 had made an offer worth £3 billion for the whole of TalkTalk. However, later that same year it dropped its bid, with the rumour mill asserting it was due to macroeconomic concerns and regulatory uncertainty.

Times have changed though, and TalkTalk is pursuing a strategy that makes it easier for potential suitors to pick and choose which bits of it they want to buy.

Indeed, with competition and cuts to marketing spend taking its toll on its broadband customer base, and with refinancing deadlines looming large, TalkTalk is under intense pressure to do something about its £1.1 billion debt pile.

In November, £330 million of revolving credit facilities (RCF) will mature, and in February 2025, it will need to refinance £685 million of loan notes. In the current economic climate, the cost of refinancing is likely to be considerable.

As a result, TalkTalk is in the process of demerging its various lines of business – consumer, B2B wholesale, and SME – into independent businesses within TalkTalk Group, making it easier to sell off bits of itself should a suitor come calling.

So far it has had mixed success. In October, it agreed to sell its B2B arm, TalkTalk Business Direct, to a special purpose vehicle controlled by its main shareholder for £95 million. That was markedly less than the rumoured valuation of £200 million that was doing the rounds last March.

Indeed, Fitch, which downgraded TalkTalk last month, noted that while the sale demonstrated shareholder support, the proceeds "were below market expectations."

The Telegraph claims TalkTalk is also in talks with infrastructure investor DigitalBridge regarding a stake in its wholesale operation, but so far these alleged talks have yet to bear fruit.

As for its consumer unit, any agreement that sees VMO2 swallow up a rival broadband provider in TalkTalk is likely to attract a good deal of regulatory scrutiny. However, perhaps there is an argument that TalkTalk – as a relatively small player in the UK broadband market these days – won't tip the balance of power too far in VMO2's favour.

If negotiations have indeed restarted as the Telegraph claims, TalkTalk's bean counters will hope that VMO2 feels more confident this time about getting a deal over the line.