Carphone Warehouse To Buy Tiscali UK For $355M

Carphone Warehouse Plc (CPW.L) agreed to buy Internet service provider Tiscali UK (TIS.MI) in a deal making Carphone Britain's biggest residential broadband provider, overtaking Virgin Media (VMED.O).
The British telecoms and retail group will pay 236 million pounds ($355 million) in cash for the UK assets of the Italian group, marking the end of Tiscali's plans to become a pan-European broadband player.
Carphone will finance the acquisition, which comes without debt, from its existing facilities.
The deal ends more than a year of uncertainty for debt-laden Tiscali, which first put its UK business up for sale in 2008, and signals telecoms valuations may have fallen far enough to stir renewed takeover activity in the sector.
Tiscali also said on Friday its board of directors had approved key terms of a plan to restructure its more than 600 million euros ($804 million) of debt.
Shares in Tiscali fell 0.6 percent to 0.428 euros by 1517 GMT in volatile trade. Carphone was up 6 percent to 167.5 pence. The European telecoms index .SXKP was flat.
Analysts reckoned Tiscali could have fetched twice the price a year ago, but its debt problems, uncertain future and global economic woes have undermined its value.
It now plans to use proceeds from the sale and from a possible capital increase of up to 210 million euros to restructure its debt. Tiscali suspended payments on its long-term debt in March.
Pure-play ISPs have been struggling for years as services provided by others, such as Apple's (AAPL.O) iTunes, auction site eBay (EBAY.O) or Google (GOOG.O), attract consumer spending while the access provided by ISPs has become a commodity.
In 2000, Tiscali had operations in 15 European countries as well as in South Africa and now, after five years of disposals, its activities are confined to its home market, Italy.
"For Tiscali as a whole, today's event marks the end of the pan-European dream," said Analysys Mason analyst Cesar Bachelet.
SIGNIFICANT SCALE
Carphone Chief Executive Charles Dunstone said the group had been determined not to overpay. "We feel very pleased that in the end the world moved our way," he said in a conference call with analysts.
British pay-TV and broadcaster British Sky Broadcasting (BSY.L) had also been eying Tiscali's UK assets before talks faltered in March.
Citigroup analyst Andrew Lee said the price of about 150 pounds per subscriber Carphone was paying was around 10 percent more expensive than acquiring subscribers in the market.
"But it is cheaper than recent comparable deals and the only way to significantly increase scale, given UK broadband penetration of circa 65 percent," he wrote in a note on Friday.
BT (BT.L) with 4.7 million customers including business clients, is still Britain's biggest broadband supplier. Carphone will reach 4.25 million with the addition of Tiscali's 1.45 million customers, while Virgin has 4 million.
The deal is conditional on Tiscali obtaining formal approval to restructure its debt, and is expected to close by end-June. Tiscali's chief executive said founder Renato Soru would subscribe to his share of the capital increase.
The debt restructuring plan should be finished by June 5, and will be presented along with a new business plan. Key creditors Intesa Sanpaolo (ISP.MI) and JP Morgan (JPM.N), jointly hold about 350 million euros in debt.