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TalkTalk considers £1.1bn takeover bid

TalkTalk has agreed to progress Toscafund Asset Management's proposal
October 8, 2020

TalkTalk (TALK) is considering a potential takeover bid by Toscafund Asset Management, which values the company at 97p a share or £1.1bn. 

IC TIP: Hold at 122p

The investment firm is the largest institutional shareholder in the mobile and broadband operator. Its proposal comes with a number of conditions, including that the takeover is supported by TalkTalk’s executive chair Sir Charles Dunstone. Sir Charles has the largest individual stake in TalkTalk, according to FactSet. 

With net debt sitting at three times adjusted cash profits (some way off its target multiple of two times), TalkTalk has been scrambling to hive off some of its assets  - including its FibreNation business, which it sold to CityFibre for £206m in March. The sale pushed it to a profit of £131m in 2020, after a £5m pre-tax loss in 2019.

The company’s relatively small market value has helped to position it as a takeover target, given the mammoth size of UK peers Vodafone (VOD) and BT (BT.A).  Sky News wrote in July that TalkTalk had previously rejected an offer from Toscafund in 2019, reportedly valuing the company at 135p a share - around two-fifths higher than the current bid. 

TalkTalk’s shares closed yesterday at 83p, having shed more than a quarter of their value since the start of 2020. The stock has been depressed for much of the year, with the operator struggling to cope with the coronavirus fallout. The absence of live sports, as well as some trading restrictions and declines in voice calls, pushed the group’s top-line down 7 per cent in the first quarter of FY2021.