Telefónica confirms deal to buy E-Plus for $6.6 billion and create Germany’s largest operator

Telefónica confirms deal to buy E-Plus for $6.6 billion and create Germany’s largest operator

Telefónica’s much-rumored pursuit of fellow operator E-Plus — Dutch telecom firm KPN’s German subsidiary — has reached a conclusion after the Spanish telecoms company announced that a deal worth €5 billion ($6.6 billion) has been agreed.

Telefónica will merge E-Plus with its existing business in Germany — Telefónica Deutschland — to create the country’s largest operator and second biggest in Europe based on subscriber numbers. Under the terms agreed, a two-phase investment process will see Telefónica eventually take up a 65 percent stake in the new company, with KPN allocated a 17.6 percent share and the remainder left as free float.

The coming together of the two businesses will take the new company past current market leaders Vodafone and T-Mobile. In total, it will have a cumulative base of 43 million customers, which equates to a dominant market share of nearly 40 percent of Germany’s mobile phone users. Not to mention that the new entity will have combined revenues of around €8.6 billion — boosted by estimated cost savings of up to $5.5 billion thanks to shared infrastructure, resources and services.

The deal has been on the cards for as long as a decade. While difference of opinion put pay to a deal in the past, both sides were said to have opened fresh talks in April 2013.

The acquisition will be subject to the regulatory gaze of the European Union but, all being well, it is expected to go through in the first half of 2014.

Further details of the phrases of the deal are as follows:

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. Therefore, 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.

KPN says it will shift its focus to Belgium and the Netherlands following the deal.

Headline image via Thinkstock

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