The former CEO of Everything Everywhere is planning a takeover bid for the firm. Dominic White says that although the odds are long, he shouldn’t be ruled out just yet
“I won’t say I won’t be back – the mobile industry is in my blood and I’m sure I’ll still be involved in some shape or form.”
Thus spoke Tom Alexander to Mobile News a year ago when he resigned from Everything Everywhere, which runs the Orange and T-Mobile networks.
The last thing anyone would have expected was that the former racing car driver would now be back, plotting a takeover bid for his old firm.
Indeed, Alexander has been in detailed talks with US buyout company KKR, whose British assets include Alliance Boots and British firm Apax Partners, about a potential offer for his former company.
Alexander did say at the time he left that he would not run another network: so you can’t say he lied.
The price tag has been put at anything between £8 billion and £11.5 billion, which would make it one of the biggest private equity deals in British history, if it actually came off.
One thing is for certain, Alexander wouldn’t be considering the offer if he didn’t think that the current shareholders might be persuaded to sell and that there was value to be had.
For starters, the business is starting to throw off lots of cash despite its tough beginnings. That’s because the benefits of the Orange UK/T-Mobile merger that former Orange UK boss Alexander led three years ago are starting to come to fruition, in the form of cost savings stretching to £3.5 billion.
It emerged this week that Everything Everywhere is to pay £125 million each to its French and German parents, Orange, owned by France Telecom, and T-Mobile, owned by Deutsche Telekom.
That is the kind of reliable cash-flow that private equity firms love. Such firms borrow heavily to fund their acquisitions, use the takeover company’s strong cash-flows to pay down the debt, and see their equity stakes increase as a result (just like taking out a mortgage on a home).
There are likely to be further payouts later this year, too: Everything Everywhere paid dividends of £693 million in 2011 and paid off £1.25 billion-worth of loans to Orange and T-Mobile, which means it is now self-financed and, some would say under-geared. The group issued almost £900 million of bonds in the first quarter, but it still has capacity to raise up to £3 billion in total.
Alexander also knows the businesses intimately, having overseen the messy merger that formed it.
He will doubtless have a plan for what to do with Everything Everywhere’s joint branding strategy, too.
The model is clearly not sustainable in the long-term. By getting rid of both brands and starting a new one, he could really make an impact.
Alexander knows all about branding from his days running Virgin Mobile, where he sprinkled the Richard Branson fairy dust on the sector.
His time at Virgin Mobile was mixed but ultimately successful, given the amount shareholders made when it was folded into NTL to create Virgin Media.
Alexander, who started out in mobile back at BT Cellnet, will also know that Deutsche Telekom is considered a potential seller of its stake. It’s on a mission to dispose of non-core assets after failing to sell its US assets to AT&T last year. It also faces a hefty bill to fund the roll-out of fixed line fibre networks back home in Germany.
It is reported that Alexander could just try to buy out the Germans, which would mean he was back in partnership with his former friends at Orange.
Another thought is that he could offer to buy France Telecom’s stake and license the Orange brand off it, as Virgin Mobile did with Branson.
Another option that France Telecom has been actively pondering is a flotation, which would presumably give Deutsche Telekom an (at least partial) exit.
France Telecom finance officer Gervais Pellissier told reporters at a conference recently: “If EE is really on the right track in terms of synergies and if we can make a good case to investors, we might look at listing.
“But the partners need to distinguish between the short-term value we could get from an IPO or a sale, and the long-term value of being number one in the UK for the two companies.”
Pellissier’s boss, France Telecom CEO Stéphane Richard, did not rule out a sale but was more guarded, saying: “We have a joint venture with Deutsche Telekom in the UK.
“We are happy with how it works, we are happy with the operations, we are happy with the management, we have no problems with this joint venture. The Germans are also happy to be there – they don’t wish to sell it. We don’t wish to sell either.
“If we receive an offer that makes sense, of course we will look at it. That does not mean we will accept it. But as of today, there is no seller of Everything Everywhere – not us, not the Germans, neither of us. Synergies are measured quarter by quarter. We were a little behind at the beginning but now we are ahead of plan.”
It has been reported that KKR and Apax could be prepared to fund £3 billion of equity for a bid, with the remaining £5 billion raised from US banks. Apax has already shown an appetite for mobile assets, buying Orange Switzerland for £1.2 billion in December.
Of course, even if both shareholders became willing sellers, a deal of such size would take time to put together, given the sums involved.
Analysts at Espirito Santo bank put a chunky £10.6 billion valuation on Everything Everywhere and were less than charitable about Alexander’s track record.
“The figurehead for the deal, Tom Alexander, is an odd choice given that he was allegedly seen to have failed once in his management role at EE,” said the bank in a note to investors. “Certainly, the performance of EE under Olaf Swantee has been markedly better.”
It’s true that the company is in a better financial position since Alexander’s successor, former France Telecom executive Swantee, sliced his senior management team in half on day one and then cut 600 jobs.
But don’t rule Alexander out just yet. If he can somehow pull it off against the odds, it would be his most audacious comeback yet.