KPN has agreed to sell its German mobile business E-Plus to Telefonica as it registered second quarter results with profits down by over two-thirds.
Telefónica Deutschland is paying €5 billion for E-Plus, with KPN taking a 17.6 percent stake in the new buyer as part of a complicated two-step sale process.
The Netherlands-based operator, which is putting the deal to shareholders at an EGM, promised to use the majority of the cash proceeds to “increase its financial flexibility” and recommence dividend payment to shareholders for 2014.
"The opportunity to unlock significant value in Germany by selling E-Plus is clear and compelling,” commented KPN chief executive Eelco Blok.
“The significant premium embedded in the sale price recognizes the substantial operational synergies. The combination of E-Plus and Telefónica Deutschland will establish a mobile operator with attractive synergy and growth potential in Europe’s largest economy.”
As a result of the deal between the third and fourth largest mobile players in Germany, Telefónica will become the country’s largest operator with 43 million mobile customers, combined revenues of €8.6 billion and roughly 37 percent market share.
As well as having to get past KPN’s shareholders, Europe’s competition authorities must also pass the deal that sees the continent’s largest market reduced to three major mobile operators.
"Regulators will no doubt take a keen interest in the merger. The German authorities, as well as the EU, dislike reductions of within-market competition,” said Warwick Business School Assistant Professor Ronald Klingebiel.
“The EU, however, has emphasised its intention to foster a pan-European telecom market, which will eventually see a reduced set of regional carriers. It has also made conciliatory signs towards telecom companies… If the EU decided within that spirit, the deal might just have a chance without incurring too many concessions.”
Ovum analyst Emeka Obiodu added: “Three players in European markets seems to be the balance in order to ensure adequate market competition while retaining healthy profits for the players.”
KPN’s Blok said his company will focus on its core geographies if the deal goes ahead early next year as it looks to turn round its continued weak financial performance.
Results for the April-June period revealed that profits were down by 68 percent year-on-year to just €108 million.
Overall Q2 revenues, meanwhile, fell by 8.1 percent to €2.9 billion. In Germany, they were down 4.6 percent to €803 million.
Net debt fell from €12.5 billion at the end of Q1 to €9.5 billion this time around.
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