The Telefónica Board of Directors today confirmed it has approved the acquisition of E-Plus, KPN’s subsidiary in Germany. The operation is subject to obtaining both the relevant regulatory approval and clearance at KPN’s and Telefónica Deutschland’s Extraordinary Shareholders’ Meeting. The deal will result in a new leader in the German mobile market with 43 million mobile customers and combined revenues of €8.6 billion euros. The transaction is expected to be closed during the first half of 2014.
“The total value of the synergies expected from the transaction is estimated in between 5 and 5.5 billion euros net of integration costs. Net savings will be positive from year 2,” the Spanish company forecasts.
The transaction is divided into two phases. In the first phase, Telefónica Deutschland will acquire 100% of E-Plus for €3.7 billion euros in cash and a stake of 24.9% in the combined entity. This cash payment will be financed via a rights issue for 3.7 billion euros, of which, Telefónica S.A. will subscribe 76.8%, in proportion to its current stake, corresponding to 2.84 billion euros.
In the second phase, Telefónica S.A. will acquire from KPN a stake of 7.3% in the combined entity for a total of 1.3 billion euros. As a result, Telefónica SA and KPN will hold 65% and 17.6% of Telefónica Deutschland, respectively, while the remaining percentage will be free float. Of the 5 billion euros paid in cash to KPN, the total amount required by Telefónica S.A to finance this operation equals 4.14 billion euros.
With this agreement, Telefónica will become Europe’s second largest operator by number of mobile clients and volume of revenue and will improve both its growth and cash generation profile. Additionally, Telefónica will gain a leading position in the largest and one of the most dynamic mobile markets in Europe. The company will also become the leading operator in terms of number of accesses, network quality and distribution network in three of its main markets: Germany, Brazil and Spain.
“Creating a leading, sustainable and innovative Digital Telco focusing on mobile data and LTE development in Germany is a natural strategic step for us,” said Telefonica in a press release.
This move follows a decisive year in Telefónica’s transformation process. Twelve months ago, Telefónica set the strategic objective of increasing financial flexibility and reducing leverage via several initiatives, which included proactive management of its asset portfolio. The company has reduced net debt by approximately 10 billion euros since June 2012. This process has enabled the company to resume dividend payments.