Telefónica to Buy E-Plus of Germany From KPN

Telefónica to Buy E-Plus of Germany From KPN

BERLIN – The Spanish phone giant Telefónica agreed on Tuesday to buy Germany’s smallest mobile operator, E-Plus, from its Dutch rival KPN in a cash and stock deal worth at least 5 billion euros ($ 6.5 billion) amid signs of accelerating consolidation in Europe’s telecommunications sector.

The transaction, which will require approval from European antitrust officials as well as the boards of both companies, would reduce the number of network operators in Germany to three from four and would create a strong rival to T-Mobile Germany and Vodafone Germany, which together have more than half of the market.

Telefónica, based in Madrid, plans to combine E-Plus, which has 23.9 million customers and recorded 3.4 billion euros in revenue last year, with O2 Germany, the country’s third-largest network operator, which it already owns.

KPN said it had agreed to sell E-Plus to Telefónica for 3.7 billion euros in cash. KPN will also initially receive a 24.9 percent stake in the company, Telefónica Deutschland, which owns the combined operator. As a final condition of the deal, Telefónica said it would buy a 7.3 percent stake in Telefónica Deutschland from KPN for 1.3 billion euros.

Telefónica said it planned to finance the initial cash payment to KPN by selling new shares of stock in Telefónica Deutschland to existing shareholders in a rights issue. When the deal is concluded, Telefónica said it would hold 65 percent in Telefónica Deutschland, and KPN would have 17.6 percent, with the rest of shares widely held.

KPN said its resulting stake in Telefónica Deutschland, plus the cash payments, made the total transaction worth 8.1 billion euros.

“The combination of E-Plus and Telefónica Deutschland will establish a mobile operator with attractive synergy and growth potential in Europe’s largest economy,’’ KPN’s chief executive, Eelco Blok, said in a statement.

The purchase would create a mobile operator with 43 million customers, a 38 percent market share and more than 8 billion euros in annual revenue. The fusion would probably accelerate the plans by both companies to build out fast mobile broadband in Germany using Long Term Evolution, or LTE, technology.

Telefónica said the combination of O2 Germany with E-Plus would generate savings of 5 billion euros to 5.5 billion euros through combined distribution, customer service and network services, after deducting for “integration costs,” which the Spanish company did not specify.

“Creating a leading, sustainable and innovative digital telco focusing on mobile data and LTE development in Germany is a natural strategic step for Telefónica,’’ the Spanish company said in a statement.

The proposed acquisition is the second in Europe in less than a year to reshuffle a national telecommunications sector.

In January, European regulators approved the sale of Orange Austria to 3 Austria, a unit of the Hong Kong-based Hutchison Whampoa, in a 1.3 billion euro deal that reduced the number of operators in that country to three from four.

As part of that deal, the European antitrust regulator, Joaquín Almunia, required 3 Austria to reserve almost a third of the newly combined network for virtual network resellers for a decade. Analysts expect that Telefónica may be required to make similar concessions to guarantee competition in Germany.

The transaction in Austria and the proposed sale of E-Plus to Telefónica are the latest signs of what may be a revival of merger and acquisition activity in Europe’s telecommunications sector, which had slowed in the last several years amid the global economic slowdown and the financial difficulties of Southern Europe.

The volume of mergers and acquisitions in the sector had fallen to 16.3 billion euros by mid-December 2012, less than half the 35.4 billion euros in 2010 and down 59 percent from a peak of 39.7 billion euros in 2007, before the financial crisis took hold, according to Mergermarket, a research company.

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