THUS Gets Your Communications

THUS acquires enterprise service providers Your Communications and Legend Communications for £70M

February 1, 2006

3 Min Read
THUS Gets Your Communications

After losing out to Cable and Wireless plc (NYSE: CWP) in its bid to buy Energis plc (OTC: ENGSY) last year, THUS plc (London: THUS) has found two smaller enterprise service providers to expand its customer base and network reach, for which it will pay out a combined £70 million ($124.02 million). (See THUS Buys Two Carriers.)

THUS will buy the awkwardly-named Your Communications Ltd. from United Utilities plc for £58.8 million ($104.18 million) in shares. Your serves enterprise and public sector customers, mostly in the North West of England, and is the U.K.'s largest reseller of mobile business services from Vodafone Group plc (NYSE: VOD). THUS, formerly known as Scottish Telecom, operates across the U.K., with points of presence concentrated in Scotland and the South of England.

As part of the deal, THUS gets to be preferred supplier of managed services to United Utilities and a strategic partner to its outsourcing services subsidiary, Vertex.

United will become THUS's largest minority shareholder with a 22.5 percent stake, although it's immediately being reduced to 21.7 percent by a placement of 67.4 million shares that will raise gross proceeds of £9.6 million ($17.01 million). (See THUS Places Shares.)

The placement will partially finance the purchase of business ISP Legend Communications plc for £11.5 million ($20.37 million). The remaining amount will come from THUS's cash resources. Legend operates in the North of England and will beef up THUS's Demon operations, adding 14,000 customers to its 106,000 small and mid-sized business users.

KBC Peel Hunt analyst Andrew Darley notes shareholders won't be best pleased by the share placement, and reckons it's a testament to the unattractiveness of THUS stock that Legend wouldn't accept the paper. "Thus is in an unattractive position and is to be applauded for taking action," he writes, "but to spend GBP30M in exceptional acquisition costs to achieve GBP25M synergies is a risky pursuit when the telecoms environment is still under such pressure."

THUS expects pressure to continue in the second half of the financial year, a trend that prompted rival Cable & Wireless to announce a reorganization and profit warning yesterday. (See C&W Says Ciao to Caio.)

The deals mark THUS's first acquisitions since it launched in 1999, but the operator has long said it needs to roughly double in scale to return its cost of capital -- something it tried to accomplish by bidding on Energis. (See THUS, C&W Clash Over Energis, THUS on the Prowl, and THUS: Still Shopping.)

Today's purchases go part of the way. Your Communications will boost THUS's revenues by more than half -- it reported revenues of £98.2 million ($173.98 million) during the first half of the fiscal year compared with THUS's £174.5 million ($309.17 million) -- while Legend has revenues of around £9.4 million ($16.65 million).

But as CFO John Maguire noted in a presentation to analysts this morning, the three companies trade between each other, so the real overall increase in THUS's revenues will be slightly lower. He also acknowledged that sales will be affected by the company being busy with the integration process, for which THUS is extending its loan facility by £30 million ($53.15 million).

So does all this mean THUS still hasn't finished shopping?

A spokesman for the operator says yes. He explains that the acquisition strategy is a long-term one and that THUS will "continue to look at acquisition options going forward" to help it increase sales. "Today’s initiative is a means of accelerating that goal."

As part of what it's dubbed a "transformation," THUS is putting its Demon Netherlands business up for sale to focus on the U.K. operations. The unit accounted for 6 percent of turnover for the six months ended September 2005 and had 59,000 DSL customers.

The carrier is also proposing a 1-for-10 share consolidation to reduce the volatility of its stock.

THUS's shares closed down 75 pence (5.00%) today on the London Stock Exchange to 14.25 pence (25.25 cents).

— Nicole Willing, Reporter, Light Reading

Subscribe and receive the latest news from the industry.
Join 62,000+ members. Yes it's completely free.

You May Also Like