Tuesday, May 13, 2008

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Will Tiscali Be Sold Whole Or In Parts?

Tiscali admits it's in negotiations with a "short list" of bidders for the company, confirming what had been widespread rumors that the Italian broadband carrier is on the block.

However, reports say U.K.'s Carphone Warehouse, which would become the biggest broadband provider in Britain if it buys Tiscali's U.K. operations, isn't on that list because it hasn't yet offered a high-enough price. Carphone Warehouse reportedly has offered a bit more than $1 billion for Tiscali's U.K. operation (Telecom Web news break, April 3), with some reports putting the bid as high as $1.3 billion. However, at current share prices, Tiscali in the aggregate has a market cap of $2.2 billion, and the U.K. operation is the larger part of Tiscali. That's led to some speculation that Tiscali, by publicly declaring that it is considering bids, is trying to negotiate with Carphone via press release.

Tiscali said that it would be willing to sell its U.K. and Italian units separately. "We are not against a breakup," Tiscali CEO Mario Rosso told analysts on a conference call yesterday. "We are open to all solutions."

Seven carriers reportedly have bid for the carrier, of which all but Carphone Warehouse are being given a look at the company's books so that they can perform their due diligence. Tiscali didn't name those seven nor did it confirm the exact number of potential bidders. The short list - excluding Carphone Warehouse - was drawn up during a four- hour board meeting yesterday as the company prepared to release its latest financial results.

Names being bandied about as bidders include Vodafone, BSkyB, BT, Fastweb and Italian wireless carrier Wind. Telecom Italia, the only potential bidder to actually issue a statement, said it hasn't put down any money but is monitoring the situation.

It isn't known which of the bidders might be making offers for all of Tiscali, and which for only the U.K. or the Italian parts, but there are some obvious guesses. In Italy, Tiscali has a 5-percent market share, trailing Telecom Italia and Fastweb. The big action, though, is in the U.K., where Number Four Tiscali has almost 2 million broadband subscribers, mostly obtained through its $427 million acquisition of Pipex, the U.K.'s premiere ISP, last year (TelecomWeb news break, July 13, 2007). Carphone Warehouse has better than 2.5 million subs, of whom it picked up 1.5 million broadband customers when it bought Time Warner's AOL U.K. operations for $688.91 million (TelecomWeb news break, Oct. 11, 2006).

Combined, that would give Carphone Warehouse an estimated 4.6 million subscribers, leapfrogging both BT with somewhat more than 3.6 million subscribers, and Virgin Media, currently Number Two with a several hundred thousand fewer subs than than does BT.

Being Number One no doubt is tantalizing, but just how much Carphone Warehouse might sweeten its bid is unknown. The company does have the cash it needs - Best Buy is paying it $2.2 billion in return for half ownership of Carphone Warehouse's consumer retail store chain (the deal doesn't include the broadband and VoIP business). Carphone Warehouse hasn't commented on the current Tiscali situation but, in the past, it has insisted that while it is in acquisition mode, it doesn't intend to overpay for anything.

With the big question being who is going to win Tiscali - and indications are that a decision will come next month - the carrier's quarterly financial results were of relatively minor interest and pretty much were reported as expected. Sales rose 43 percent year over year to $427.5 million, but that reflected the Pipex acquisition and not phenomenal growth. On those sales, the first quarter net loss narrowed 12 percent to $58 million.