Banks set to take over Energis after venture capital bid ruled 'too greedy'

The banks that lent £700m to Energis are poised to reject a bid from a private equity consortium for the company, in favour of taking over the stricken telecoms group themselves.

Banking sources said the private equity operators were offering too little and the lenders had other options open to them.

The group of 16 banks, led by Royal Bank of Scotland, Barclays Capital and HSBC, have grown frustrated by the tactics of the venture capitalists, who they accuse of being too "greedy". The bidders, Apax Partners, Carlyle Group and CSFB, would pay the banks only a proportion of the Energis debt, in return for stripping all debt off its balance sheet and taking the company over. The private equity bid would then install its own management, led by Duncan Lewis, a former Cable & Wireless executive.

The situation remains fluid, according to sources inside the discussions, and the venture capitalists could sweeten their offer, but the banks are said to be losing interest in the talks.

One banking source said: "The core Energis business model is sound. The private equity guys are being pretty aggressive and they want their own management in. We are not going to succumb to that. We can be patient because we're comfortable with Energis' UK business."

Energis needs a cash injection of £100m, which the private equity players were offering. However, the banks could provide the money themselves, and this now looks the most likely outcome.

Under a bank takeover, the existing Energis management, led by chief executive David Wickham, would continue to run the company. To pursue this course of action, the banks would need to be convinced they have a better chance of getting more of their money back than under the private equity deal. Energis would be put into a special purpose vehicle and this may involve placing the company into administration.

A telecoms industry insider said: "The venture capitalists want it on the cheap, like all good VCs. The banks see a good business in the UK, which the VCs are undervaluing. Remember that even now, Energis continues to win new business."

Energis is believed to have a turnover of about £800m and earnings before interest, tax and depreciation of some £160m.

A third alternative, a debt-for-equity swap would be more beneficial to bondholders, who are owed £560m, but that is unlikely to appeal as much to the banks, which have first rights over the Energis UK business. None of the three proposals appears to offer anything to shareholders.

For their part, the Apax-led bidding consortium have become exasperated that the deal they have been working on for months appears to be off.

Last week another private equity house, Permira, which had been a part of the consortium, walked away. Permira had hoped to bring in Archie Norman, the Conservative MP and former Asda chairman, to be part of a new Energis management team.

There were disagreements in the consortium about the level of risk inherent in the Energis business, doubts about its financial figures and some friction over management roles, should the bid succeed. It was unclear what role Mr Norman would have had in relation to Mr Lewis, who has the telecoms experience but also a reputation for being difficult to work with.