Tiscali puts UK broadband unit back on the market as Carphone circles

Italian broadband group Tiscali is in new talks to sell its UK business, it revealed yesterday, with Carphone Warehouse understood to be among the potential buyers.

The group, which runs the fifth largest broadband business in the UK, said that following market speculation, it "confirms the existence of negotiations for the disposal of its activities in the UK".

One source close to the talks said the Italian group was negotiating with "a number of potential buyers". He added: "It is likely they will now sell, but to whom remains unclear."

Carphone, which operates its broadband business under the TalkTalk brand, has expressed interest in a deal in the past, and is among those taking a seat at the table in the current round.

Tiscali's future was thrown into doubt after talks to sell the UK business to BSkyB collapsed last month.

Those negotiations broke down because the broadcasting group, which under Jeremy Darroch is steadily growing its broadband business in the UK, thought Tiscali's asking price was too high.

Tiscali has built a strong presence in the UK with 1.8 million customers, "although that is falling fast," according to one rival. But its Italian parent is facing financial pressures, with the auditors Ernst & Young last month refusing to sign off on its accounts. E&Y said its fears over the company's future meant it could not give an opinion on its financial statement for 2008.

Much of the speculation over Tiscali's ability to continue as a going concern relates to whether it can renegotiate its debts. The group has a standstill agreement with its lending banks until June, which it said this month could be extended to the end of the year. It added yesterday that the negotiations to sell up in the UK were "in parallel with the debt renegotiation process".

One source with knowledge of the situation said: "This is a necessary step. Either it sells its UK business or the banks will probably walk in. They are looking to drum up an auction."