Dealtalk: Bankers skeptical over British mega-mobile deal
LONDON (Reuters) - The former head of Britain's biggest mobile phone company Everything Everywhere approached private equity groups six months ago about an eight billion pound buyout but found no takers, investment banking sources said.
Tom Alexander, who left the France Telecom-Deutsche Telekom joint venture a year after it was created, spoke to firms including KKR (KKR.N), CVC and Providence, the sources said. But he gained little traction for a bid.
"Tom was trying to get people to buy into this months ago and nobody was biting. Financing markets are even worse right now, I think the idea of a leveraged buyout of that size is preposterous," said one of the bankers.
London's Times newspaper said on Friday that the veteran telecoms executive had emerged at the head of a surprise offer backed by private equity, with funding for a purchase in place subject to agreement on price.
The paper characterized the deal as "imminent" and likely to be finalized in six weeks.
But a private equity deal of the size of Everything Everywhere would run against the trend in the market, which is focused on mid-sized deals under a billion pounds because banks have cut lending substantially as they delever assets.
Another banker said that deals involving three or four private equity firms were complicated even in buoyant markets because firms often had different ideas about how to structure an offer, or how to create value once they had bought a company.
"You would need to persuade private equity to stump up 500 million to one billion pounds of equity each. In the current markets, I do not see that happening."
An employee of a private equity firm conceded that mounting a bid for Everything Everywhere would be difficult now.
"The debt markets are very challenging and this would be a very big deal," he said.
France Telecom's FTE.PA chief finance officer Gervais Pellissier told Reuters last week that the company had to have a presence in Britain as a pan-European operator.
Pellissier said he would consider floating a stake in Everything Everywhere, but that France Telecom and Deutsche Telekom (DTEGn.DE) would want to retain control.
"In EE, we have created the number one operator in the market. If we succeed it will be a strong number one. So you have to weigh the short-term value of an IPO or sale with the long-term value for two companies of being in the UK," Pellissier told the Reuters Global Technology and Media summit.
"I am not confident that in three years the UK margins will be so much better than today (to make a better case for selling)."
France Telecom's Orange joined forces with Deutsche Telekom's T-Mobile in 2010 to become the biggest operator in the highly competitive market with more than 27 million customers.
The group pledged 3.5 billion pounds ($5.4 billion) in cost savings largely by creating one network and taking down excess mobile towers to go from 28,000 to 18,000 sites.
But the joint venture has taken longer than expected to generate synergies and the group is still yet to decide how many brands to maintain and how to resolve other operational issues.
Deutsche Telekom said on Saturday that Everything Everywhere was viewed as very successful in a competitive market, with synergies well under way. The company told shareholders last month it intended to continue the partnership.
France Telecom reiterated on Saturday its support for Everything Everywhere.
"France Telecom clarifies that no offer from a third party to acquire the business was received, nor has one been invited," a spokesman said.
"Everything Everywhere is a strong business with a clear leadership position in the UK market and its shareholders are 100 percent supportive of the group, its management and strategy."
(Additional reporting by Harro Ten Wolde and Kate Holton)