Virgin Media O2 is apparently no longer working towards a £3 billion takeover of broadband rival TalkTalk, the deal apparently derailed by macro-economic issues and regulatory uncertainty.

Mary Lennighan

November 1, 2022

3 Min Read
VMO2 gigabit van

Virgin Media O2 is apparently no longer working towards a £3 billion takeover of broadband rival TalkTalk, the deal apparently derailed by macro-economic issues and regulatory uncertainty.

Talks between the pair are ongoing, but their focus has shifted towards a possible smaller-scale wholesale deal, the Telegraphreported, while also noting that TalkTalk is holding discussions with Openreach about migrating its customers to full fibre.

Essentially, there are a number of networks out there that could end up being home for TalkTalk’s customers. But it looks like the takeover deal that has already been months in the making is off.

The most recent reports of discussions between Virgin Media O2 and TalkTalk emerged in July, with Sky News and various other media outlets claiming early-stage, non-exclusive talks geared towards brokering a merger deal that valued the target company at £3 billion. There were question marks raised at the time about whether TalkTalk was worth that much, or whether founder Charles Dunstone was chancing his arm; after all, the late-2020 £1.1 billion takeover that saw TalkTalk taken private valued it at around £2 billion, including debt. There has been some growth since then, but possibly not £1 billion worth.

But the Telegraph report does not suggest a failure to reach agreement on valuation – so often the cause of abandoned M&A – is a factor here. Rather, the broader economic crisis, and specifically the lack of access to debt markets, seems to have overturned their companies’ plans. The paper also suggests that a lack of clarity on how regulators would view the merger, particularly the  Competition and Markets Authority (CMA), which has been operating under an interim chief executive – Sarah Cardell – since July.

On the regulatory front, the deal would have brought together two sizeable players in UK broadband, with a combined customer base that would rival that of market leader BT. That, of course, was a large part of the attraction for Virgin Media O2, which would have been looking to migrate TalkTalk’s 4.2 million customers to its network.

Now it appears that there is a chance for VMO2 to pick up some TalkTalk broadband customers, but not all, although the Telegraph does not share numbers. And should TalkTalk broker a deal with Openreach, it would become significantly less interesting to Virgin Media O2.

That said, TalkTalk will likely retain its position as a prime acquisition target in the UK, given the size of its subs base and its own financial issues. As the paper points out, the telco is feeling the financial heat as a result of a £1.1 billion debt burden, stricter covenants from lenders, and a recent warning from auditor Deloitte about questionable accounting practices.

Add in the cost-of-living crisis and the impact that will have on TalkTalk as fairly low-cost broadband provider with a price-sensitive customer base, and it’s pretty clear the company is not in great financial shape.

Whether Dunstone would support a deal at less than £3 billion is unclear, but it’s not too much of a stretch to suggest that there are possible buyers in the UK market that could now be looking to snap up a bargain.


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About the Author(s)

Mary Lennighan

Mary has been following developments in the telecoms industry for more than 20 years. She is currently a freelance journalist, having stepped down as editor of Total Telecom in late 2017; her career history also includes three years at CIT Publications (now part of Telegeography) and a stint at Reuters. Mary's key area of focus is on the business of telecoms, looking at operator strategy and financial performance, as well as regulatory developments, spectrum allocation and the like. She holds a Bachelor's degree in modern languages and an MA in Italian language and literature.

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