The creditor bloodbath in UK telecoms

One scoop to start: Healthcare group McKesson and private equity firm Clayton Dubilier & Rice are closing in on a deal to buy· the largest independent provider of medical infusion services in the US, valuing the business at more than $5bn including debt.

And an important event: Today Arash Massoudi, team DD and some of the biggest names in private capital are gathering in London to discuss the state of the industry. Keep an eye out for exclusive reporting from the conference later this week.

In today’s newsletter:

• TalkTalk’s unhappy creditors

• A $40bn merger Monday

• The mixed fortunes of GE’s spin-offs

A wipeout in UK telecoms

BT’s eleventh-hour acquisition of UK broadband provider TalkTalk may have given a lifeline to 1.5mn broadband customers. But the company’s owners and creditors owed almost £1.5bn have been afforded no such reprieve.

BT’s move to acquire the heavily indebted company out of administration is set to leave the majority of those lenders with nothing, said two people familiar with the matter. 

After years of pouring hundreds of millions of dollars into the broadband group, in the form of equity and debt at multiple parts of the capital structure, US private capital group Ares Management is set to receive a payout of more than £100mn.

Yet those creditors lower down the capital stack will not be so lucky, with BT’s offer likely failing to cover those in the most secure of TalkTalk’s bonds.

Ouch.

BT’s move will lead to it taking control of the business, shorn of its debts, as part of pre-pack administration, which will grant it a further 1.5mn UK broadband customers. BT said it anticipated the deal would result in a £400mn hit to its cash position in its current financial year.

The agreement came after the FT reported that BT chief executive Allison Kirkby had met government officials last week to discuss how to address competition concerns that could arise from combining two large broadband providers.

A deal between the companies would ordinarily trigger a competition review as Openreach, the broadband network owned by BT, is TalkTalk’s largest supplier.

But UK culture secretary Lisa Nandy on Monday said she had invoked a public interest intervention notice for the deal “to ensure that impacts on public health, critical national infrastructure and supply to vulnerable customers are fully considered as part of this process”.

Creditors are not the only unhappy party.

BT’s rival Virgin Media O2 said the deal had “all the characteristics of a stitch-up masked as a rescue deal in the public interest”.

The comments came days after the Competition and Markets Authority indicated it might block a £2bn deal by Nexfibre, a broadband provider part-owned by the company’s shareholders, to acquire its rival Netomnia, citing competition concerns.

It’s fair to say that TalkTalk has not been a good investment. BT will be hoping to change that.

Merger mania returns?

Just when DD thought we might’ve seen an end to the M&A boom, more than $40bn in deals from industrial software to trucking and decorative paints to telecoms got the fourth quarter off to a big start.

Schneider Electric’s $23.7bn acquisition of US engineering software provider PTC, the French industrial conglomerate’s biggest acquisition, led the charge on this Merger Monday.

The deal, first reported on Sunday by the FT, is the biggest Europe-to-US deal since 2021 and the second-biggest American acquisition by a French company on record, according to Dealogic.

Meanwhile, logistics firm CH Robinson agreed to buy trucking brokerage firm RXO for $5.8bn and Dulux owner AkzoNobel sold its south-east Asian decorative paints business to Nippon Paint for $1.35bn.

In the UK, some big brand names also made a splash, despite one being small and the other being history. Beyond BT’s acquisition of TalkTalk, Sainsbury’s held talks earlier this year with private equity-owned rival Morrisons over a potential multibillion-pound UK supermarkets deal before walking away, the FT reported.

Some of the challenges DD flagged in our third-quarter wrap hold true: rising interest rates, AI anxiety and midterm elections threaten to derail a blockbuster year for mergers and acquisitions.

But some astute readers couldn’t help but notice the dichotomy of our headlines on Monday, with one top banker sending a “funny” with the tears of joy emoji when he woke up to a $20bn-plus transatlantic deal next to our headline about the threats of an early end to the M&A boom.

It’s a good reminder that when it gets eerily quiet, you should get ready for some surprises.

The fate of GE’s offshoots

The break-up of the General Electric empire, one of the largest corporate divorces in history, was widely hailed on Wall Street as a slam-dunk success.

But the performance of its offshoots has not been uniformly positive — as revealed by the deals struck by GE Aerospace and its smaller sibling GE HealthCare over the past month — and the re-emergence of Nelson Peltz’s Trian Fund Management on the latter’s shareholder register.

GE HealthCare, which was first spun off in early 2023, on Monday announced a nearly $1bn deal to buy radiopharmaceutical company Sofie Biosciences from mid-market private equity group Trilantic Partners, confirming a DD scoop from last month. Bank of America, Consello and Solomon Partners advised on the acquisition.

The deal, the healthcare group’s second largest, comes as the group considers offloading its patient care solutions division and stares down Trian, which has boosted its stake to a $200mn position. Trian played an instrumental role in GE’s three-way split.

While GE’s healthcare offshoot is focused on tuck-in deals, GE Aerospace, led by chief executive Larry Culp, the mastermind behind the original break-up, is taking bolder swings, striking an $11.75bn deal in September to buy Warburg Pincus-backed Consolidated Precision Products.

The acquisition of CPP is a classic vertical integration, with GE Aerospace buying a supplier of coatings used in turbine production, as the wider industrial sector faces a squeeze on the supply of critical parts.

Shares in GE Aerospace have roughly doubled since the break-up, giving it a market value of $321bn, while power company GE Vernova has seen its market capitalisation increase sevenfold to $264bn as it rides the AI power boom. By contrast, GE HealthCare is up just 14 per cent since its first trading day.

For some of the GE offshoots, they are in full dealmaking mode. For others, the break-up continues.

Job moves

• Lazard has hired Lorenzo Bini Smaghi as a senior adviser in Europe. He was previously chair of the board of Société Générale.

• Debevoise & Plimpton has hired Neal Reenan and Ian Bushner as M&A partners in New York. They join from Freshfields.

• Evercore has hired Hans Vestberg as a senior adviser in New York. He was previously chair and CEO of Verizon.

• Houlihan Lokey has hired Jane Ma as a managing director in financial services in New York. She previously worked at Moelis & Company.

• Sodali has hired Peter da Silva Vint as a managing director in M&A and activism advisory in New York. He joins from Jasper Street Partners.

Smart reads

Rogue hackers OpenAI faces a possible barrage of lawsuits after its AI agents hacked dozens of companies and governments worldwide, the FT reports.

Alpha chasers FT Magazine spent some time getting to know a few members of a secretive and selective group chat for some of the world’s most successful Polymarket traders.

Missing billions Wealthy people worth a combined $160bn have departed the UK in recent years in the face of higher taxes, Bloomberg calculates.

News round-up

Nvidia’s $20bn licensing deal with Groq faces lawsuit from jilted engineers (FT)

Citi to speed up promotion path for junior bankers as hiring war heats up (FT)

TotalEnergies boss hails ‘opportunities’ created by global market turmoil· (FT)

Top Monte dei Paschi investor backs Intesa’s sweetened €34.5bn takeover bid (FT)

Saudi Aramco chief warns world’s oil stockpiles are ‘scarily thin’ (FT)