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CityFibre on brink of revived £200m TalkTalk deal

Written by on 16/01/2020

A £200m takeover of a division of TalkTalk Telecom Group that was stalled by Labour’s pledge to nationalise broadband provision is on the brink of being unveiled.

Sky News has learnt that CityFibre Holdings, which is part-owned by the Wall Street investment bank Goldman Sachs, could sign a deal to buy TalkTalk’s FibreNation unit as early as Friday.

Negotiations about a deal were at an advanced stage on Thursday evening, according to insiders.

One source said a transaction could be announced before the weekend or on Monday, although they cautioned that there was a slim chance that it could still fall apart.

If concluded, an agreement would allow CityFibre to increase its target of connecting five million homes to full-fibre broadband by 2025 to eight million.

It would also enable TalkTalk to reduce its level of debt.

The deal was hours away from being announced in November but was blown off course by Labour’s vow to nationalise BT Group’s broadband infrastructure division, Openreach, and deliver free fast broadband to every UK home and business.

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Image: The deal would enable TalkTalk to reduce its level of debt

Since the Conservatives’ victory in last month’s general election, TalkTalk has discussed a sale of FibreNation to other parties, including John Laing, but has decided to pursue the CityFibre deal.

The quest to provide fast broadband services has become the subject of intense political scrutiny, with Boris Johnson demanding full-fibre broadband provision to every UK home by 2025.

On Thursday, the prime minister and Baroness Morgan, the culture secretary, held a roundtable with telecoms executives to discuss progress towards that target.

The chief executives of CityFibre, TalkTalk and BT were among those who attended, with issues including business rates relief and rural subsidies among those discussed.

Announced in February 2018, TalkTalk said it would fund 20% of the new FibreNation venture, with Infracapital, a fund backed by the insurer Prudential, providing the majority of the money.

However, the discussions with Infracapital stalled amid a dispute over the valuation of TalkTalk’s existing full-fibre network in York.

Under the proposed deal with CityFibre, the Goldman-backed company will take full control of FibreNation, with TalkTalk receiving a cash payment and signing a long-term agreement to be a customer of the business.

CityFibre, which is building fibre infrastructure in cities such as Aberdeen, Coventry and Milton Keynes, has struck an agreement with Vodafone to end an existing exclusivity arrangement.

In total, CityFibre is expected to invest a further sum of approximately £1.5bn in order to hit its revised target of eight million homes.

Like other new competitors, CityFibre has been set up to seize market share from Openreach, which now operates on a more arms-length basis from BT.

Liberty Global, the owner of Virgin Media, is in the process of establishing a new joint venture in order to compete in a more expansive way in the broadband market.

A number of smaller players, including Hyperoptic and Gigaclear, have also been set up, leading analysts to question how many of the new companies will ultimately be financially successful.

BT, meanwhile, has signalled that it might have to cut its dividend in order to fund the huge investment required to accelerate full-fibre broadband provision.

CityFibre could not be reached for comment, while TalkTalk, which is being advised by bankers at Lazard, declined to comment.

 Sky News

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