IHS Global Insight Perspective | |
Significance | Tiscali claims its lenders are prepared to extend their current standstill arrangement until the end of 2009, but time is running out. |
Implications | The operator cannot expect limitless patience from its lenders, and needs to come up with a radical recovery strategy immediately. |
Outlook | Tiscali is rapidly running out of options if it cannot find a buyer for it's U.K. unit—and may have to accept a significantly reduced price if it has any hope of securing a sale. |
An independent auditor's report has cast further doubt over the future of Tiscali, stating that Italian Internet ISP could only continue if it renegotiates its debts. Auditors Ernst & Young said Tiscali's full-year 2008 accounts revealed "fundamental uncertainties" over the operator's business continuity, and the auditor refused to sign off the results, saying it was "not able to give an opinion".
Tiscali has contested the auditors' conclusions, saying that negotiations are continuing with its creditors over its heavy debt burden, which is now thought to stand at 600 million euro (US$794 million). The ISP, which operates in Italy and the United Kingdom, has already agreed a standstill arrangement with banks until June, and said it would propose a plan to reduce the firm's losses at a shareholder meeting later this month.
Tiscali had around 2.3 million broadband customers at the end of last year, including about 1.8 million in the United Kingdom. Shares in the company fell nearly 6% following the auditor statement.
Outlook and Implications
- Time is Running Out for Tiscali: In its initial full-year 2008 financial report, Tiscali noted net losses of 242.7 million euro, down a massive 272% on 2007 figures, due to financial charges of 96.4 million euro and a write-down of 65 million euro on its assets (see Italy: 31 March 2009: Tiscali Full-Year 2008 Earnings Down 25% on Charges, Carphone Mulls U.K. Bid). The company is struggling with huge debts, largely accrued by the cost of its international expansion, and it is now severely overstretched. Although independent auditors Ernst & Young's report concluded that the company's future was dependent on a successful conclusion to debt talks with its main lenders, the operator is confident it can re-negotiate these debts, and Tiscali's statutory auditors concluded the company could continue as a going concern. Tiscali claims its lenders have indicated they would be prepared to extend their current standstill arrangement until the end of 2009, but time is running out. The operator cannot expect limitless patience from its lenders, and needs to come up with a radical recovery strategy immediately.
- Can Tiscali Find a Buyer for its U.K. Business? The ISP has desperately been trying to sell its U.K. business, in order to clear debts and start afresh at home, but negotiations with rival BSkyB failed last month, leading to trading in the operator being suspended as shares went into freefall. The operator has already spun off most of its other international interests (see Italy: 3 February 2009: Tiscali Sells International Network Business to Private-Equity Firm), and is rapidly running out of options if it cannot find a buyer for it's U.K. unit. Recent reports have suggested Carphone Warehouse is considering a fresh bid, after walking away from talks last year, and there is also some speculation that BSkyB is considering a return to the negotiating table. However, talks so far seem to have broken down over price, and Tiscali may have to accept a significantly reduced price if it has any hope of securing a sale.