Carphone Buys Onetel

LONDON -- The Carphone Warehouse announces that it has exchanged contracts with Centrica plc ("Centrica") to acquire the Onetel group of companies from Centrica, for an initial cash consideration of £132.0m funded via an extension of existing debt facilities. The acquisition will complete on 31 December 2005. £94.9m of the consideration relates to the purchase of the residential and business operations, and £37.1m relates to an agreement under which Centrica will recruit a certain number of customers for Carphone Warehouse through its British Gas operations for the next three years.

In addition, The Carphone Warehouse has agreed to pay Centrica up to a further £22.2m over the next three years if higher British Gas customer recruitment targets are met.

About Onetel

Onetel is one of the largest alternative telecoms providers in the UK, providing landline calls, line rental, dial-up, broadband and mobile services to residential and small business customers. Onetel currently has the following approximate residential customer numbers:

In addition, there were 50,000 business CPS customers. In the year to December 2004, revenues were £280m and the operating profit was £3.0m. In the six months to June 2005, revenues were £162m and the operating loss was £2.0m. Adjusted net liabilities at December 2004 were £77.1m, including an intercompany loan of £114.9m, and gross assets were £155.6m.

Rationale for the acquisition

Since launching TalkTalk in 2003, The Carphone Warehouse has been the fastest growing CPS service provider in the UK, building a customer base of 1.06m by September 2005.

Our goal is to become the number one alternative residential telecoms provider in the UK market. The acquisition of Onetel propels us clearly towards that position and gives us a substantial platform of profitable voice customers from which to launch our drive into the broadband market in 2006. It also allows two major competitors to join forces in their bid to deliver improved value and service to residential customers.

We intend to rebrand Onetel's operations as TalkTalk and to give all of Onetel's residential customers the benefit of free on-network calls as quickly as possible. In tandem with the acquisition of Tele2's UK business, also announced today, we will then have a base of approximately 2.4m TalkTalk customers all calling each other for free.

As a fundamental part of the transaction, we have reached agreement with Centrica to use its British Gas distribution platform as a sales channel for TalkTalk for the next three years. We believe that this significantly enhances the value of the transaction for The Carphone Warehouse as it gives us access to a substantial new source of potential customers through a well-recognised and successful channel.

Onetel's 50,000 SME customers, and its broadband and data services expertise acquired through its acquisition of Rednet earlier this year, will be integrated into Opal's existing business operations, in line with Opal's strategy of consolidating the business reseller market and progressing its data offering.

Financial impact

The initial cash consideration for the acquisition is £132.0m, of which approximately £114m will be used to pay off an intercompany balance. £94.9m of the consideration relates to the acquisition of the Onetel companies. Of the remaining £37.1m, £10.1m is a fixed sum that relates to the agreement under which Centrica will recruit customers for Carphone Warehouse through its British Gas operations for the next three years, and £27.0m is a variable sum dependent on the number of customers recruited through this channel.

In addition, The Carphone Warehouse has agreed to pay Centrica up to a further £22.2m over the next three years if higher British Gas customer recruitment targets are met.

The transaction is due to complete on 31 December 2005 and is not subject to any other conditions. At this stage we anticipate that the acquisition will increase current year pre-tax profits by approximately £4m, and next year's pre-tax profits by approximately £20m.

Carphone Warehouse Group plc (London: CPW)