BT, the FTSE 100 telecoms group, has bought TalkTalk out of administration to keep millions of customers connected, at an estimated cash cost of about £400 million this financial year.
The deal covers TalkTalk Telecommunications and PlatformX Communications (PXC), its wholesale network arm, and was struck on a debt-free basis.
The two businesses serve 2.5 million customers, made up of 1.5 million retail and 1 million wholesale, including connections used by health, emergency, defence and government services.
The £400 million covers the purchase price, transaction and administration costs, working capital and a trading loss of about £60 million for the rest of the year.
It also includes about £100 million BT will not now receive from TalkTalk that would otherwise have gone to Openreach, its network arm.
TalkTalk lost money on revenues of about £1.2 billion over the past 12 months.
Rival bids fell away
BT was not TalkTalk's first choice, as the company had spent months trying to sell its consumer and wholesale divisions separately.
Opus Broadband had been in exclusive talks over the consumer arm and Octopus Investments over PXC, but neither agreed a deal.
Epiris, a private equity firm, then pursued PXC and reportedly asked BT to forgo at least £300 million owed by TalkTalk to Openreach.
TalkTalk is understood to have rejected that proposal, while Ares Management, its largest creditor, had been tipped as the likeliest owner of the consumer business.
Debts of between £1.4 billion and £1.5 billion, and bidders' concerns over Openreach fees, complicated the process.
Regulatory review ahead
A regulatory review is expected over the coming weeks, and until it ends TalkTalk and BT will operate separately and keep competing.
Clive Selley, chief executive of BT International, will lead stabilisation and integration planning with immediate effect.
BT reconfirmed its outlook, including normalised free cash flow of about £2.0 billion this year, excluding the effects of the deal.
BT also plans to keep growing its dividend by a low- to mid-single-digit percentage a year.
Allison Kirkby, BT's chief executive, called the situation "genuinely unprecedented", with millions of citizens and businesses at risk had TalkTalk collapsed.
