More European M&A as Denmark could become almost a two-horse race

More European M&A as Denmark could become almost a two-horse race

03 DEC 2014

TeliaSonera and Telenor have agreed to merge their Danish operations — the latest example of realignment in Europe’s mobile market.

If the deal goes ahead, the two companies will be equal partners in a new joint venture rivalling market leader TDC.

TeliaSonera/Telenor and TDC would each have around 40 per cent share of the country’s mobile market — if national regulators and the European Commission approve the deal.

And that could be the big ‘if’. Earlier this week, the Norwegian Competition Authority expressed doubts about TeliaSonera acquiring Tele2 in Norway because it threatened to reduce competition.

In Demark, TeliaSonera and Telenor say they expect EU clearance and closing of the transaction during 2015. The operations will remain separate, operating independently (and presumably competitively) until the transaction closes.

The partners made clear the reason behind the merger in a joint statement. Kjell Morten Johnsen, EVP and head of Telenor Region Europe, said competition made consolidation “inevitable”.

“By combining the assets and customer bases of Telenor and TeliaSonera in Denmark, the joint venture will become a robust operator,” he added

The move was both “necessary” and “natural”, according to Robert Andersson, EVP and head of Region Europe at TeliaSonera.

A combined entity would have a connections base of 3.76 million (GSMA Intelligence, Q3 2014 figures), compared to TDC’s 3.78 million, and revenue of more than DKK 9 billion ($1.5 billion). The country’s third largest operator, 3 (Hutchison), has 1.1 million connections and a 12 per cent share.

The aim is, of course, for favourable synergies to result from any combination. Annual efficiency gains are pegged at least DKK 800 million, coming into full effect from 2019. The largest synergies come from distribution, sales & marketing and call centers, general & administrative cost, network and IT. However, integration costs are expected to be around DKK 800 million during 2015-2017.

The board of the proposed joint venture will have balanced representation from Telenor and TeliaSonera. The board will have seven members, of which each party will appoint three. The chairman shall be appointed unanimously by the parties.

They will start a recruitment process to find a suitable CEO.

Telenor and TeliaSonera have agreed that the enterprise values of their respective operations are “fairly equal” and hence the agreement is based on equal ownership.

Differences in net debt and changes in working capital from signing the initial agreement to closing will be settled in cash.

Author

Richard Handford

Richard is the editor of Mobile World Live’s money channel and a contributor to the daily news service. He is an experienced technology and business journalist who previously worked as a freelancer for many publications over the last decade including...

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