Carphone ponders £900m spin-off of Talk Talk

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The Independent Online

Carphone Warehouse, the telecoms and broadband provider, is mulling proposals to spin off of its home phone and internet business Talk Talk, in a bid to release some of the value of the group for shareholders.

It is thought that Talk Talk could command a market value of as much as £900m if it was separately listed. Currently, the whole group is worth just £1.3bn – less than 40 per cent of its value at its peak in August last year.

Spinning off Talk Talk would leave the group to focus on its network of high-street stores as well as its new joint venture with the US retail giant Best Buy. Carphone sold a 50 per cent stake in its retail business to Best Buy for £1.1bn in May – and the pair have plans to open 100 out-of-town superstores together in the UK, competing with the likes of Comet and Currys.

Any spin-off of Talk Talk would not take place until next year at the earliest, due to the current choppy market conditions. However, chief executive Charles Dunstone, who owns a 32.6 per cent stake in the business, may confirm that the company is considering a separate listing for Talk Talk as early as this week.

The company will be publishing its interim results tomorrow, which are expected to be accompanied by an update on future plans for the group. Analysts are forecasting interim pre-tax profits of £45.2m, compared with £56m in the same period last year.

However, Carphone is expected to paint a bleak picture of the months ahead, as the economic slowdown bites into its in-store sales. It is also seeing a sharp reduction in the number of new customers in its broadband business. In the three months to the end of September, the company saw net new customers of 41,000 – fewer than half the level it was recording a year ago.

Confirmation that a demerger is being considered may also reignite interest in Talk Talk from trade bidders. Vodafone, which already has almost 4 million broadband customers across Europe, has been rumoured to be interested in the division. However, last week, Vodafone's new chief executive, Vittorio Colao, distanced himself from suggestions that his company may be interested in acquiring a broadband business in the UK.

Either way, a sale or demerger would be popular with shareholders. In a recent research note, analysts at Société Générale said: "The current group structure no longer makes sense. We get the impression that a demerger is the most likely route in the short to medium term."

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