Business Watch: Phones 4U is back on the block


Retail chain Phones 4U hires Deutsche Bank to advise on possibility of its sale, as questions are raised also about TalkTalk sale and about Vodafone foreign strategy

Four years after it bought the mobiles chain from founder John Caudwell, private equity firm Providence Equity Partners has reportedly hired bankers to consider selling the company.

Providence has engaged Deutsche Bank to advise it on whether it is time to sell after receiving several takeover approaches for its controlling stake in the high street retailer.

Its early days, and anyone who followed John Caudwell’s tortured sale of the business in 2006, will know not to expect a particularly quick outcome.

But it would be a very big deal if it happens. Analysts estimate the business could be worth between £700 million and £800 million.

It’s hard to tell whether that would be satisfactory. But it would potentially give Caudwell another windfall as he has retained a small stake in Phones 4U.

Caudwell famously started the company in 1987 by buying 26 phones from the US for more than £1,000 each and selling them on in the UK. As the story goes, it took him eight months to sell all 26, but by the time he flogged Phones 4U it was shifting 26 mobiles a minute.

When he sold out, the former used car salesman became a cash billionaire. But the company has struggled against Carphone Warehouse and its image with the general public still needs improvement.

Nevertheless, this year Phones 4U is expected to generate sales of £850 million and underlying profits of £125 million.

Electronic goods retailer Dixons Stores Group (DSGi) looks like a prime candidate to bid after it recently agreed a tie-up under which Phones 4U concessions will be put into all Currys Megastores and some Dixons outlets.

The addition of Phones 4U would boost DSGi’s fight back against Carphone Warehouse, which is trampling on its patch with its big box out-of-town outlets.

Other names in the ring include computer game retailer Game Group.

Phones 4U’s massive retail footprint, some 476 stores, will also attract interest from the network operators, which will all knock on Deutsche Bank’s door to take a look at the books if a formal sale process starts.

Vodafone is an obvious potential bidder as it is trying to fight back in the UK market as its focuses on its European operations and retreats from minority stakes in far-flung parts of the globe.

TalkTalk and Dunstone
Indeed, analysts at Liberum Capital have also suggested that Vodafone should buy TalkTalk so that it can offer its customers the quadruple-play offering of mobile phone, home phone, broadband and pay-TV services.

TalkTalk signed a mobile virtual network operator deal with Vodafone last month and has moved into IPTV with the acquisition of Tiscali.

TalkTalk valued at £1.25 billion would add a handy 4.2 million fixed line broadband users to Vodafone’s 19 million UK customer base.

There is no evidence of any talks but the speculation will doubtless have been noted by TalkTalk chairman Charles Dunstone.

TalkTalk shares have performed well in recent months too but not as well as Carphone’s since Dunstone demerged the two in March.

Indeed, Dunstone has just taken advantage of Carphone’s stellar run on the stockmarket to cash in the largest value of his stake since the business first floated in 2000.

Carphone shares have risen from less than 140p in March when the company demerged TalkTalk, to around 240p this week.

Dunstone, who moved from chief executive to chairman of Carphone as part of the demerger, has flogged £35 million of stock, representing about three per cent of the company.

He sold 15 million shares late last week at 236p for what the company described as a “combination of personal requirements”.

Dunstone has previously sold shares to buy racing yachts, his hobby and passion, but what his latest personal requirements are remains unknown.

Normally when directors sell shares, other investors get spooked because they worry the directors know something they don’t.

In Carphone’s case the shares fell by less than one per cent, dropping 2p to 240.5p in response to the sale.

It’s not much of a fall and reflects the fact many investors still like the shares and have struggled to get their hands on them because so much of Carphone’s share register is dominated by its founders.

Carphone said that its broker Citigroup managed to place the shares with other investors at 238p in just five minutes.

Dunstone’s unlikely to start buying shares though as so much of his personal wealth is tied up in Carphone.

But he’s not going anywhere just yet either. He still owns 29.1 per cent of the company and investors really would get scared if he tried to sell all that at once.

Vodafone abroad
Meanwhile, speculation continues to rage about what Vodafone’s next big international move will be as investors await the results of its strategy review.

It’s assessing its minority stakes abroad after shareholders complained that they haven’t generated the promised returns.

Much of the speculation has surrounded Verizon Wireless in the US but now there is specualtion that Vodafone could be close to selling its 45 per cent stake in SFR, the French mobile phone company, to Vivendi, which owns the other 55 per cent.

John Karidis, an analyst at MF Global, told The Daily Telegraph: “A deal will happen either side of year-end 2010, because this is when Vivendi expects to receive $5.8bn (£3.7bn) for its 20 per cent stake in NBC Universal”.

Karidis reckons that a sale of the SFR stake, which could bring in £6.4 billion for Vodafone, would help Vodafone squeeze a full price for its minority stake in Verizon Wireless out of Verizon Communications, the majority shareholder.

Nokia N8 delay
Finally, Nokia has announced another delay to the launch of its flagship N8 model, the first smartphone to use Nokia’s new Symbian software.

The device was originally meant to reach consumers in June but two months before release in April Nokia delayed it until September.

Pressure is more intense than ever in the smartphone market and Nokia can ill afford another slip.