Leveraged buyout just might be on cards instead
Reports that Britain’s largest mobile carrier EE could be floated by the end year have spurred the possibility of a buyout, in what would be the biggest private equity-backed acquisition in Europe since the recession.
It’s claimed that a group formed by Apax and KKR and another led by Blackstone and CVC Capital Partners are working on competing offers, accelerating talks with lenders to secure up to £10 billion ($15.7 billion) in possible funding.
The potential bidders are also said to be working on plans that would see EE’s owners France Telecom and Deutsche Telekom retain a 15 per cent to 20 per cent stake in EE.
If it goes ahead, the leveraged buyout would be the largest private equity deal in European telecoms since the acquisition of a controlling stake in TDC, Denmark’s largest phone company, by a group including Blackstone, Apax, Permira and KKR in 2006.
Though talks with banks are reported as advanced, they remain limited until the would-be bidders have access to detailed financial information about the company, a prerequisite to making formal bids.
Typically buyout firms use a third of their own funds to pay for acquisitions, using debt to finance the rest. It’s also expected potential buyers will seek help from US financial institutions where credit is easier to obtain than in the UK.
Meanwhile it’s thought that an IPO continues to be the preferred option for EE, but if France Telecom and Deutsche Telekom can obtain a better price from private equity then they may just be convinced to go down that route.
EE, which was created through the merger of Orange and T-Mobile’s UK arms, is nearing the end of a three-year restructuring that aims to to deliver cost savings of £3.5 billion. As part of the makeover around a tenth of its stores are to be closed.
Telecom firms are attractive to private equity because of the normally high levels of cash generation, as well as the opportunity to cut costs through network sharing and consolidation.
US telecom’s giant AT&T might also be interested in an outright purchase of EE, it’s claimed, using the service provider as a test bed for its pricing strategies and new technologies as it expands beyond its own shores.