Centrica sells telecoms arm to Carphone Warehouse

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Carphone Warehouse splashed out more than £140m yesterday on the acquisitions of OneTel and the British and Irish arms of Tele2, more than doubling its market share of the UK landline telephone market.

The group will pay OneTel's owners, Centrica, up to £154.4m for the business, starting with a cash payment of £132m. This comprises a £94.9m sum for OneTel's operations, and £37.1m for Centrica to recruit customers to Carphone Warehouse via its British Gas business over the next three years. A further £22.2m will then also be payable to Centrica if certain performance targets are met.

The Tele2 acquisition will see Carphone Warehouse pay an initial consideration of £8.5m, as well as a further £2m in restructuring costs.

Once the deals are complete, the group plans to merge its two acquisitions with its existing landline business, Talk Talk, creating the UK's second biggest fixed-line operator. The combined entity - which will run under the Talk Talk brand - will have a market share of more than 10 per cent in the UK landline sector.

Charles Dunstone, the chief executive of Carphone Warehouse, said: "[Talk Talk] has been the fastest growing in the market place and it's had the strongest brand after BT. But they're enormous, and we're minnows in comparison, so it certainly makes sense to put these businesses together."

Mr Dunstone said that although he expected significant cost savings from the acquisitions, he did not yet know exactly how much they would be. But he said Carphone Warehouse expects the OneTel deal to enhance its current financial year's pre-tax earnings by £4m, and by a further £20m next year.

His plans for the newly enlarged business include offering free same-network calls to all OneTel and Tele2 customers as soon as possible.

Centrica bought OneTel four years ago for £58m, since when it has taken the business to break-even level, while quickly expanding turnover and its customer base.

Sir Roy Gardner, Centrica's chief executive, said: "We have grown OneTel substantially over the past few years to become a significant residential fixed-line competitor to BT. However, as we have made clear for some time, global energy markets are changing rapidly and we want to focus closely on growing our core energy and related services operations in the UK and internationally. We will continue offering telecoms services to our British Gas customers, but we don't need to own OneTel to do this."

Analysts and investors welcomed the deal yesterday, saying it was a necessary next step for Carphone Warehouse. Shares in the company leapt more than 8 per cent yesterday, before closing the day up 7.4 per cent at 258.75p, giving the company a market value of £2.25bn.