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Tiscali acquires Pipex

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CIOL Bureau
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LONDON, UK: Tiscali and Pipex Communications Plc have entered into an agreement for the acquisition of the broadband and voice division of Pipex by Tiscali UK Holdings Limited.

The enterprise value agreed for the acquisition is £210 million. The final equity value, which will be determined at closing, is subject to adjustment for net debt position, the level of working capital. The acquisition is subject to the approval of Pipex's Shareholders and clearance by the UK Office of Fair Trading.

The Division, was expecting 2007 sales of over £300 million and an EBITDA of over £20 million on the basis of 1Q07 results and of Tiscali's own estimates. The Division has in the region of one million active customers, 650,000 voice customers and 570,000 broadband customers - of which, 250,000 are dual play - and 100,000 are SME business customers and approximately 1,400 employees.

Following the acquisition, Tiscali UK will have 1.9 million broadband customers. Tiscali UK has unbundled 800 exchanges, reaching 55% of UK homes with plans to extend this network to over 1,000 sites covering at least 65% of the UK's addressable DSL market. In addition, Tiscali UK has rolled out an extensive next generation high bandwidth network to support both its business customers and new IPTV triple play product.

 “Tiscali will acquire around 570,000 broadband subscribers at an approximate cost of £368 per subscriber.At such a price, this deal would have been hard to turn down for Pipex, even if it did have aspirations to counteract the force of consolidation currently sweeping the UK broadband market. It is increasingly difficult for mid-scale ISPs to compete effectively against the big five. With a brand that is entirely centred on broadband as the core service (in Ovum's opinion), this was the best move for Pipex.”

OVUM's Comment on deal

Comment: “After various rumours have been flying around regarding Pipex's sale, the announcement has finally come in. Tiscali will acquire around 570,000 broadband subscribers at an approximate cost of £368 per subscriber. This is over £100 more per customer than BT paid for Brightview's customer base earlier in the week, over twice the amount Carphone Warehouse paid for AOL's customers, and around £33 more than BT's price per Plusnet customer.”

“At such a price, this deal would have been hard to turn down for Pipex, even if it did have aspirations to counteract the force of consolidation currently sweeping the UK broadband market. It is increasingly difficult for mid-scale ISPs to compete effectively against the big five. With a brand that is entirely centred on broadband as the core service (in Ovum's opinion), this was the best move for Pipex.”

“So why Tiscali? Prior to rumours earlier in the year, Tiscali seemed an unlikely outcome, particularly with the operator itself rumoured to be up for sale. However, that said, it makes sense. If Tiscali plans to sell up, an additional 4.2% market share certainly won't hurt its sale price, and combined with an upcoming launch of TV service and other premium content, would make it an attractive proposition for the likes of the fast-growing Sky, the late-to-market O2, or even an ambitious Carphone Warehouse.”

“Alternatively, if Tiscali wishes to keep going, it is now in a stronger position to compete on its own. The new company's market share would amount to around 15%, widening the lead over Orange, and coming closer to Carphone Warehouse's third place. In addition, its new TV services, will give the operator a strong product set including IPTV to better compete with the other major players as an independent entity.”

“If Tiscali chooses the latter, it will face numerous challenges. Most importantly it must build its brand as a consumer company capable of providing not only broadband but the array of additional services that it must sell to remain in business. Unless Tiscali does this, we don't think it will have the brand to compete in the longer term. Today it is predominantly known as a basic service provider - it needs to move quickly towards a more converged, consumer brand if it is to survive.”

“The wider market must also be wary. With over 2m subscribers, Tiscali now becomes a much more influential player in the market. Any future sale of Tiscali UK to O2 or Sky for example would radically shift the balance of either.  Conversely, its continued business, will now present a significant challenger to BT and Virgin Media and leaves Orange with a widening problem of how to win market share. As ever, the UK market has a lot of surprises to come, possibly one of the most significant being Tiscali's long-term strategy.”

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