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Thursday, November 16, 2006

BT Commences Hoovering Operation with Plusnet

BT has made an offer this for morning for Plusnet valuing it at £66.7m. Given that BT already has received 25.2% acceptances for the offer it can be more or less guaranteed success. I've believed that BT will follow the strategy of KPN for some time.

At 30th June, Plusnet reported in its interims a net cash balance of £3.8m, so EV will be slightly below £66.7m. For the half year PlusNet reported Profit After Tax of £2m which gives an approximate P/E ratio of 16. Turnover for the first six months was £22.5m. The most important part for BT is wholesale revenues that BT has now guaranteed. Unsurprisingly, these wholesale network costs were PlusNets largest item in its cost base at approximately 60% of total cost base of £15m for the first six months or around £18m per annum. This figure is “guesstimated” from data within the presentation pack of the interims results announcement.

BT plan to keep Plusnet as a brand and maintain the operation in Sheffield. However, I’m sure that Tiscali in time will lose their LLU contract with Plusnet and all Plusnet's base will remain on-net. If the deal is completed by Christmas and at the time of Q4 subscriber data being released, I'm sure we will find out that BT will be back on top of the UK market overtaking ntl.

I’m also sure a few other small to medium ISPs will be studying the deal and wondering whether now is the time to cash in their chips.