Vodafone buys Peoples Phone in pounds 77m deal

Vodafone yesterday strengthened its grip on the UK's mobile phone market with a pounds 77m "defensive" deal to buy Peoples Phone, the largest independent service provider. The company also gave an upbeat assessment of the market's growth prospects.

In the group's second such acquisition in the space of four months it will take over Peoples Phone's 181 shops on top of its existing total of 230 and will add 395,000 subscribers. The chain made losses of pounds 7.3m in 1995, which it blamed on the cost of its expansion programme. Vodafone will also take on pounds 15m of debt.

Service providers buy up wholesale airtime from the big networks and sell it to consumers. Vodafone emerged as the most successful bidder in competition with Cellnet and Orange. Some 94 per cent of Peoples Phone's customers were already on the Vodafone network.

In July Vodafone paid pounds 33.6m to buy up the remaining two thirds of the Talkland chain which it did not already own. The deal, which also involved it taking over debts of almost pounds 30m, brought its total number of subscribers signed up through service providers to more than 1.1 million.

The purchase of Peoples Phone will bring a cash windfall worth more than pounds 3m to the four individual shareholders who provided the original capital to start the company in 1988. Three directors who provided seedcorn investment, Nigel Wray, Peter Whitfield and Robert Tanner, together make around pounds 2.5m, while Charles Wigoder, the former chief executive, will earn some pounds 558,000.

In addition it represents a profit of pounds 9.8m for the main shareholder, merchant bankers Singer & Friedlander, which built up a 30 per cent stake over the past three years.

However, it represents a crushing blow to the company's initial ambitions to raise around pounds 200m from a stock market listing. Tony Solomons, chairman of Peoples Phone and of Singer & Friedlander, insisted the deal, arranged by the Swiss banking group UBS, was still a good one.

It also emerged that Mr Wigoder has settled his claim against Peoples Phone for unfair dismissal following the decision to pull the flotation. He was also being sued by his former employer with allegations of accounting irregularities. Mr Solomons declined to give details of the settlement.

Sir Gerald Whent, Vodafone's outgoing chief executive, admitted the purchase was a defensive move. He said the deal made sense "when another organisation holds a large number of your subscribers and puts itself on the market.... We would hate to think of 400,000 of our customers falling into the wrong hands."

The announcement came as Vodafone, which leads the UK market, revealed a 21 per cent rise in pre-tax profits for the six months to the end of September to pounds 252.4m. In an more upbeat assessment of the UK mobile phone business, it claimed customers spending levels were stabilising after a severe price war earlier this year.

Revenue per customer also fell from pounds 481 to pounds 430, though Vodafone said this was better than its forecast of a drop to just over pounds 400.

The so-called churn rate, the rate at which customers move to other networks, rose from 25 per cent to 27.34 per cent as many subscribers switched to the digital service from the older analogue system.

The shares rose 10.5p to 254p.

Investment column, page 26