City sugar daddies mulling £10bn bid for EE, say sources

Big names in private equity have started talks on a potentially hefty £10bn buyout bid for UK 4G network operator EE. Investment firms like Apax, KKR, Blackstone and CVC Capital Partners are rumoured to be working on consortiums for competing offers for the network formerly known as Everything Everywhere, according to whispers …

[Anonymous Coward]

Lucky, lucky customers

Hmmm...who will pay for the extra debt that EE will be saddled with in order for KKR and their mates to buy it? I'm glad that I'm not (personally) a customer of EE. Not that I can afford to be smug, since my broadband is with Virgin, and I fully expect their service to get worse and prices to go up, as another robber baron looks to line his pocket and cover the costs of a buyout.

Makes you wonder whether any takeover should be subject to a public interest test, where the acquirer has to prove that the change will provide incremental benefits to the customers, instead of just being an opportunity to pillage and make the filthy rich of the private equity sector still richer.

[Anonymous Coward]

Re: Lucky, lucky customers

Takeovers are already subject to a public interest test if the takeover goes in front of the competition watchdogs. Public interest is supposedly taken into account when looking at M&A which affect competition. However, in this case there is no change in the competition landscape so there shall be no such scrutiny :(

[Anonymous Coward]

Re: Lucky, lucky customers

"However, in this case there is no change in the competition landscape so there shall be no such scrutiny :("

I know, and that's the flaw in the regime. The bureaucrats who regulate these things foolishly assume that the only thing that affects customers is a change in the competition within an industry, and even then the definition of "public interest" isn't the same as "customer interest".

There's also the question of who the banks are putting the debt in? The taxpayers of the the UK, US (and many other countries) have spent the last five years bailing out banks who lost money lending to (amongst other things) over-geared leveraged buyouts. Clearly bankers don't learn until you break their fingers, so maybe that's where we'd better start.

[Ted Treen]

@Ledswinger 07/02/13 12:55

" Clearly bankers don't learn until you break their fingers, so maybe that's where we'd better start."

Excellent idea: and if they're still not sufficiently penitent then we continue on to other appendages/body parts...

[Dan 55]

Re: Lucky, lucky customers

There's no need for any of that, if the market doesn't bear the price increase then competition will ensure that other companies will step in and provide a cheaper service.

[Lee Dowling]

Re: Lucky, lucky customers

I wouldn't worry myself about it. If the price is right for you, buy. Otherwise, don't. It's a simple rule that holds quite a lot of weight when it comes to your own money.

To be honest, EE is already too expensive for not enough actual value for me, so they're in no danger of seeing any of my money anyway. But apparently they have enough to hire Kevin Bacon to make a fool of himself, and to sponsor everything in sight (weren't the BAFTA's the EE BAFTA's this year?), so obviously they're making money somewhere. God knows where, I don't know anyone who uses them.

The same applies to my Virgin connection. When it gets too expensive, I'm out. Simple as that. I have a (deactivated) phone line from BT in the house if I need it (just gives me an automated BT woman at the moment, so it's obviously "live" even if I'm not paying for it), so that's easy to switch to any ADSL provider I like, we don't use the landline at all, and the TV we get is the cheapest they do only because it was part of the package deal. I actually have to switch over from FreeView every time I turn the TV on because it defaults to it, and we barely watch broadcast TV as it is anyway. I'd be quite happy to cut the Virgin, live off a 3G modem for a while, and source an ADSL supplier for equivalent price - it wouldn't take long to find one. I was half-considering putting a cheapo ADSL package on it anyway, because I've gotten rather good at making Linux routers perform IP failover and load balancing over multiple Internet connections at work.

But at the moment, I have no need to change.

In the modern-era, companies have to stay competitive. It will literally take me seconds to cancel the Virgin Media TV and switch to FreeView (it actually TAKES EFFORT to watch Virgin channels in preference to the same channels on Freeview, and it would save me money!), I can activate an ADSL line in days if need be and satisfy myself with a 3G dongle for the interim for only a pound or two (not counting putting my smartphone with 3G into "AP mode"), and the phone line? If it was that important I'd actually pick it up and check messages every month or so, but I don't. If it really came to it, I'd get a phone "for free" with any ADSL connection, or just buy a Skype number or SIP provider or whatever. Same for my mobile phone provider - if it came to it, a contract SIM is nothing and can be had same-day, even keeping the same number (my current number is about 10 years old this year, I think, if not more).

Not everyone has that choice, of course, but in inner-city areas where you have the most customers and the majority of your revenue, your customers have the most choice. Short of some illegal price-fixing, you can't really raise prices too much without making a loss overall.

Vote with your wallets, people. And if the company is still a success, well done to them. But it doesn't mean they'll see *MY* money.

[Anonymous Coward]

Re: Lucky, lucky customers@ Lee D

"I wouldn't worry myself about it. If the price is right for you, buy. Otherwise, don't. It's a simple rule that holds quite a lot of weight when it comes to your own money."

I'm a free markets man myself, but you have followed the fallacy of the policy makers and regulators, that it's a market and there's choice. My choices for serious modern high speed broadband are VM, or nobody. BT's sluggish upgrade of networks and foot dragging over LLU mean there's nothing they have I'd want to pay for. Likewise, if the only network that gives coverage in your home/work or other personally important locations is EE, then you don't have a choice (and with network sharing the choices will get fewer). Given that both VM, EE, and all other infrastructure businesses have regulatory permissions to do things like occupy spectrum to the exclusion of others, or the rights to go and dig up pavements and sling wires from poles, these are not free markets, there are few suppliers and huge barriers to entry, and VMNO's don't change that fact.

An interesting comparison is energy supply. You find anybody in this country who thinks that is a market and it works, and I'll eat my hat. But the reality is that it is a market, you can switch to anyone of six big suppliers and about thirty smaller ones and have an identical service. The rising costs are common across all suppliers because they have stripped everything out that they can, the underlying wholesale market confronts everybody with similar pricing, and there's no differentiation of price or service because people don't want to pay for those.

I can only vote with my wallet against VM by doing without a service I want. Is it a fair market that VM have a monopoly (or at best duopoly) of residential broadband, underwritten by law, and they can charge what they want to cover stupid M&A games by mega rich twats?

[Andyf]

Re: Lucky customers

"Makes you wonder whether any takeover should be subject to a public interest test, where the acquirer has to prove that the change will provide incremental benefits to the customers, instead of just being an opportunity to pillage and make the filthy rich of the private equity sector still richer."

I really like this idea :) Have an upvote

[Thomas 4]

Oo

I was thinking of going with EE in order to get a Lumia 920 but if they're already going to be bought out by someone, this can't end well for punters. Or at least as far as my actual understanding of these things goes. I could be wrong.

[Andrew Jones 2]

So glad that Three have announced 4G with no price rises. I think I'll stay where I am thanks.

[Jamie Jones]

I already get about 14Mbs from three mobile broadband.. From what I gather, even 4G companies aren't offering that.. (?)

<off track>

Incidentally, Three don't want my money - I use my 15GB a month on contract, and the only way I can get more is to double up with a pay-as-you-go-sim which costs a hell of a lot more..Why the can't allow contract-topups, or contracts over 15Gb a month, I do not know..... I'm surely not the only customer who would want this?

</offtrack>

[Charlie Clark]

Perverse incentives

Thanks to the money printing quantitative easing of the last few years, debt is ridiculously cheap and this kind of thing is bound to happen, especially given the recent poor returns that private equity has been offering.

Note to Ms Parnell:

The gossip is that the companies will stick around £3bn of their own dosh in the deals

It's not their own money, it funds under management.

[Nick Kew]

Re: Perverse incentives

"It's not their own money, it funds under management."

Um, it is their own money. Hence, private equity. Sure, you and I can buy and sell their shares[1]: that doesn't mean they're managing our funds, it means we own a share in them. Subtle difference. The same applies to an investment trust investing in quoted assets. Yes, they're being run by fund managers, but it's the company's own money being invested.

[1] People who expect them to make fat profits should perhaps consider buying in to those profits.

[PaulR79]

So glad the banks learned their lessons

Yup. It really makes it worthwhile that they were all bailed out after stupidly lending money to buyouts so that they can now.... stupidly lend money to fund buyouts ... like.... this........ Hey, wait a minute!

[JohnMurray]

Well..

Personally it looks like a buy-them-out and break-them-up operation starting.

Not that I care much....I have my own phone, purchased cash not subsidy. A rolling monthly contract with 1200 minutes, 1Gb data and unlimited texts with VM via............wait...........EE !

Cheaper than anything EE are offering. And I can also, via my unlocked phone, nip to three-UK if the signal is crap on VM(EE).

ADSL2 is via someone called Newcall telecom @ £13/Month at the moment, with the same (but better because it doesn't slow to a crawl in the evening) speed as I used to get with Orange. Being in the middle of fields I get around 2.3 Mb/sec.