It has been widely reported this week that Sky has backed out of exclusive sales negotiations for Tiscali’s UK broadband business. This follows Carphone Warehouse’s apparent exit from the auction process a few weeks back on the basis of price and the challenges associated with integrating Tiscali’s disparate customer operations.
The report in the Guardian this week notes that Sky and Tiscali’s Italian parent were unable to agree on price, with Tiscali looking for a price of around £600m and Sky looking to pay closer to £450m.
Who will become 3rd biggest?
The deal would immediately have made Sky Britain’s third-largest broadband provider as Sky currently have over 1.8m customers, and Tiscali have 1.77m UK customers.
Crucially, despite very attractive pricing and heavy promotion, Tiscali are losing customers in the UK. Their high customer churn has meant that their subscriber numbers actually declined in the last quarter by nearly 40,000 subscribers. This coupled with the deteriorating economic climate and slumping company valuations, makes Sky’s decision to apparently back out of the negotiations understandable.
Maybe, Maybe not
But despite these issues, if Sky believe that there is strategic logic in the deal, they may well be playing a longer game. With a notable absence of competing buyers, Sky may well be walking away, to let Tiscali stew in its own juice for a few further weeks, before returning to negotiations next year.
One thing that seems clear is that the longer a potential buyer waits, the better terms they are likely to dictate. So don’t count Sky out of the hunt for Tiscali just yet.