TalkTalk share price up, to acquire Tesco’s online video streaming service

TalkTalk Telecom Group Plc is set to purchase Tescos unprofitable Blinkbox and the deal is expected to be announced next week when Tescos CEO Dave Lewis unveils its new strategy plan.

In his attempts to turn around the struggling UK retailer, Mr. Lewis is planning to dispose of the online video streaming service, according to two people with knowledge of the matter. However, talks are at a very early stage and it is not certain whether an agreement will emerge and even if a deal is stuck, Tesco would receive a small payment for Blinkbox due to its losses.

Budged telecom TalkTalk could use Blinkbox to further increase performance of its TV business and try to keep up with the competition amid the merge of service provided by telecoms and television operators. TalkTalk TV, which has over 1.2 million users, has been recognized as the fastest developing TV operator in the UK.

Blinkbox uses its video, audio and other content to provide services much alike to a number of rival platforms, including Amazon and Netflix. The online streamer also provides a free option for its hundreds of thousands customers.

Tesco acquired Blinkbox back in 2011 for £3 million and expanded its portfolio by purchasing two other companies. In 2012 Tesco bough Mobcast, a digital book platform in September, and personalized internet radio service WE7 in June. Following the companies acquisitions, they were renamed Blinkbox Books and Blinkbox Music.

Despite Tescos effort to boosts its digital entertainment division, the three companies have been posting disappointing results. For the full-year ended February 2013 the services reported a joint loss of £24.7 million after tax and a revenue of £3.5 million.

TalkTalk is the second telecoms group to show interest towards Blinkbox, earlier this year Vodafone was negotiating with Tesco about a possible acquisition.

Bundling up different services has become important for most UK telecoms as they compete against each other to attract new subscribers. BT telecoms group recently purchased mobile phone operator EE and thus acquired the biggest 4G network in the UK.

TalkTalk Telecom Group Plc gained 0.03% on Monday and closed at GBX 305.30. On Tuesday the stock lost 0.16% to trade at GBX 304.80 at 11:37 GMT, marking a one-year increase of 0.73%. The company is valued at £2.92 billion. According to the Financial Times, the 16 analysts offering 12-month price targets for Talktalk have a median target of GBX 315.00, with a high estimate of GBX 435.00 and a low estimate of GBX 147.00. The median estimate represents a 3.18% increase from the last close price of GBX 305.30.