(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own)
By Quentin Webb
LONDON, June 18 (Reuters Breakingviews) - It sounds more
2007 than 2012. But even if markets aren’t quite ready for an 8
billion pound ($12.5 billion) buyout of Everything Everywhere,
it could make sense someday, somehow. Britain’s biggest mobile
operator would be a rare investment opportunity, and the sector
is beloved by both private equity firms and debt investors.
Tom Alexander, who stepped down as chief executive last
year, is reportedly trying to line up backers for a buyout. The
pitch should find an audience: mobile companies are cash cows,
and it’s rare for a big opportunity like this to come up in
Europe - especially one that hasn’t previously been through the
However, parents France Telecom and Deutsche Telekom seem
reluctant to cede a powerful position in Britain, and might only
exit for a knockout price. The sheer scale is another big
headache. A transaction would probably entail about 3 billion
pounds of equity finance, and 5 billion of debt. So every
possible funding source would need to be tapped.
Even the biggest PE firms would struggle to deliver that
kind of equity ticket without making their funds dangerously
dependent on one deal. But consortium deals have fallen out of
favour: running a company in tandem with rivals is a recipe for
deadlock. Unorthodox sources of capital would need to tapped:
perhaps major fund investors, such as sovereign wealth funds.
Debt would also be less than straightforward. Apax’s recent
buyout of Orange Switzerland came with borrowings of about 3.8
times EBITDA, according to Thomson Reuters LPC. A similar
multiple here, with 2011 EBITDA of more than 1.4 billion pounds,
implies a maximum 5.3 billion pounds of leverage. Debt investors
like telecoms, but this would be a stretch.
Banks would front the biggest single chunk. The high-yield
bond market, which has alternated between boom and despondency
in recent years, would also need to be open. The smallish
sterling “junk” market could take a slice, but U.S. bond
investors could also provide $1 billion or more - helped by
their experience of investing in Virgin Media, a British media
outfit that borrows in dollars. More costly mezzanine debt could
round things out.
For now, a deal looks implausible. But Alexander could line
up equity backers and then wait for a window where the firm's
parents are receptive to an offer and the bond market is
supportive. Then everything could change.
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- Tom Alexander, the former chief executive of Everything
Everywhere, has been working on a potential 8 billion pound
($12.5 billion) buyout of Britain’s biggest mobile-phone
operator, according to reports in several British newspapers.
KKR and Apax, the private equity firms, are backing Alexander’s
potential bid, the Sunday Times reported.
- However, Reuters, citing investment banking sources, said
Alexander approached private equity groups six months ago about
a buyout but found no takers. France Telecom said “no offer from
a third party to acquire the business was received, nor has one
been invited”, adding the shareholders were “100 percent
supportive of the group, its management and strategy.
- France Telecom FTE.PA and Deutsche Telekom (DTEGn.DE)
combined their British arms in 2010 to create Everything
Everywhere, which has more than 27 million customers. However,
the tie-up has taken longer than expected to generate a planned
3.5 billion pounds in cost savings. Alexander quit as chief
executive last year.
- Gervais Pellissier, France Telecom’s chief financial
officer, told a Reuters summit on June 13 that the two owners
could look at an initial public offering (IPO) if the unit was
“really on the right track in terms of synergies”. However, he
added: “But the partners need to distinguish between the
short-term value we could get from an IPO or a sale, and the
long-term value of being number in the UK for the two
- Reuters: Bankers sceptical over British mega-mobile deal
- Reuters: REUTERS SUMMIT-Everything Everywhere could float
stake-F. Tel [ID:nL5E8HDGID]
- For previous columns by the author, Reuters customers can
click on [WEBB/]
(Editing by Chris Hughes and David Evans)
Keywords: BREAKINGVIEWS TELECOMS/
(C) Reuters 2012. All rights reserved. Republication or redistribution of
Reuters content, including by caching, framing, or similar means, is
expressly prohibited without the prior written consent of Reuters. Reuters
and the Reuters sphere logo are registered trademarks and trademarks of
the Reuters group of companies around the world.