Thus pays £59m for United Utilities telecom arm

The consolidation in the telecoms sector gathered pace yesterday after Thus, the network operator spun out of ScottishPower, paid £59m for Your Communications, the telecoms offshoot of United Utilities, the water and electricity company for the North-west.

Thus is paying for the business in shares - a move which will result in UU becoming its biggest single shareholder with a 21.7 per cent stake. UU has agreed not to sell any of its shares for a year and has given Thus a three-year deal to provide its telecom services.

Bill Allan, the chief executive of Thus, said the merger would result in £25m of cost savings and about 260 job losses - 15 per cent of the combined workforce of 1,850. Thus will incur a one-off charge of £30m to cover the restructuring costs over the next 12 months.

UU could net a further £32m in additional share payments over the next two years if Thus shares reach 27p. To do that they would have to almost double from their closing price of 14.25p yesterday. The deal is a compromise for UU which had wanted to dispose of Your Communications altogether, having invested nearly £250m in the business in the past 10 years and taken a £148m write-down in its value last December.

Simon Batey, UU's finance director who will take a seat on the Thus board, said: "In an ideal world, it is fair to say we would have preferred to make a clean break and sell the business for cash. But in evaluating all the options, we decided there was merit in this deal."

Your Communications, which serves business customers mainly in the North-west, made a £22m loss on revenues of £233.5m last year. In the current financial year its financial position has suffered a further sharp deterioration due to intense competition and the defection of customers to telecoms operators with more advanced internet protocol networks. In the six months to the end of September, its sales fell 11.5 per cent.

Mr Allan said Thus would upgrade the Your Communications network, enabling customers to switch to its more advanced internet protocol technology.

Thus also raised £10m through the placing of new shares to help fund the £11.5m acquisition of Legend, an internet service provider based in the north of England.