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BT is in talks to buy smartphone reseller musicMagpie, sending the Aim-traded company’s shares up more than 30 per cent on Monday morning after two years of sinking performance.
The discussions come after EE, the telecoms group’s mobile and retail division, last month announced it would sell kitchen appliances from next year in addition to the entertainment products such as laptops, cameras and smart TVs it already sells. It also plans to expand its gaming, insurance and subscription services.
MusicMagpie, which sells second-hand computers, consoles, tablets, CDs, DVDs, games and books as well as phones, said it was in early-stage discussions with both the telecoms group and Aurelius, the private equity owner of The Body Shop, about a possible offer.
The talks come just over two years after the company announced it was listing on the London Stock Exchange and seeking a market capitalisation of more than £200mn. Since then its shares have plunged, leaving the Stockport-based group worth about £20mn.
James Barford, head of telecoms research at Enders Analysis, said any acquisition would be “very small” from BT’s perspective but that the FTSE 100 company was “likely interested in bulking up its presence in the refurbished/recycled smartphone market, an area that all of the operators have taken more interest in recently”.
Customers can sell and buy goods on musicMagpie’s platforms, with the company refurbishing products before reselling them. It also operates a tech trade-in service for businesses, in which it recycles old technology.
MusicMagpie has suffered declining sales in recent months, due in part to weaker UK consumer confidence and the impact of postal strikes earlier this year.
In the first half of its financial year, revenues fell to £61.9mn, down from £71.3mn a year earlier, while sales from its old business focused on second-hand CDs and DVDs dropped by a bigger than expected 17.4 per cent. The company said DVD and videogame sales had been hit hard by streaming, falling more than 22 per cent in the period.
The company has also been trying to break into the US market, via its American business Decluttr, and sells products through ecommerce websites such as eBay and Amazon.
Analysts at Shore Capital, which is acting as musicMagpie’s nominated adviser and broker, have listed the company’s enterprise value as £33.8mn. BT and Aurelius had until December 18 to make a bid or announce that they each do not intend to make an offer, musicMagpie said. It added there was no certainty that an offer would be made, or what the terms would be.
Kester Mann, director of consumer and connectivity at CCS Insight, said the potential deal reflected the burgeoning market for second-hand devices, with contributing factors including the increasing residual value of smartphones, widespread trade-in schemes, greater availability, cost-of-living concerns and environmental considerations.
Despite this being “an industry growth opportunity, a potential move by BT comes as a bit of a surprise”, he added, citing the telecoms group’s emphasis on its rollout of full-fibre broadband.
BT and Aurelius both declined to comment.