TalkTalk has announced that it has acquired the Tesco Broadband, homephone service and Blinkbox movies business from Tesco Plc. The assets have been purchased free of debt and as a single cash transaction believed to amount to an estimated £5m.
The telecoms group has moved to relieve Tesco of its loss-making Blinkbox streaming service, as Tesco chief executive Dave Lewis is thought to have been keen to offload the business that was introduced initially to embrace the digital age. Vodafone was previously mooted as a potential buyer for the service when speculation of a sale surfaced last October, after details of a meeting between senior executives at Tesco/Blinkbox were revealed.
However, TalkTalk has ended up making the deal, and says that the integration of Blinkbox into its existing TV business will "begin immediately". TalkTalk TV is already one of the fastest growing TV platforms in the UK with over 1.2 million customers. Blinkbox will help accelerate the development of its platform and benefits of the merger are expected to show by the end of 2015.
Tesco's broadband and home telephone services were also acquired as part of the deal, with Tesco's estimated 75,000 internet and 20,000 voice customers set to be transferred to TalkTalk's service over the coming months.
"The purchase of Tesco's broadband base is another example of TalkTalk leveraging its national network to grow faster," TalkTalk chief executive Dido Harding said. "We are excited about the future of quad-play – fixed phone and broadband, TV and mobile – and this acquisition will help to further drive home our value for money advantage."
Tesco's decision to offload these non-core services is part of a £250m cost-saving drive. The supermarket chain is trying to recover from the £263m profits overstatement which came to light last year in an accounting scandal. Tesco says that the sell-off will reduce its £1 billion capital expenditure budget for the coming year, giving it a chance to concentrate on fixing months of negative growth. The chain also plans to close 43 unprofitable stores across the country as the first steps to strengthening its balance sheet.
For TalkTalk, the deal is said to strengthen the company's position in the broadband and TV space against rivals Sky, Virgin and BT. BT's ongoing negotiation to complete a £12.5 billion buyout of EE has been said to be a major motivator for rivals to invest more in their own services in anticipation of increased competition. The Tesco Mobile business is not mentioned as a part of this TalkTalk deal.