Polkomtel Begins Due Diligence on Telefonia Dialog

Citing Herbert Wirth, the chief executive of mining group KGHM, newspaper Parkiet writes that mobile operator Polkomtel has commenced due diligence on fixed-line telco Telefonia Dialog, which is fully owned by KGHM. He also confirms that Netia, the country's largest fixed-line alternate, has been in talks to acquire the business.

Outlook and Implications

• Netia and Polkomtel Emerge As Likeliest Buyers: KGHM has made its intention to divest Dialog, a non-core asset, very clear, and whether and when the sale does happen is chiefly down to the price, as the cash-rich owner can afford waiting for the adequate premium (see Poland: 15 June 2010: KGHM Postpones Sale of Telefonia Dialog Until 2012, Scraps IPO Plans for Polkomtel—Report). Of the two prospective bidders, Netia has confirmed its interest and also secured the financing for a potential takeover (see Poland: 30 July 2010: Netia Secures New Credit Line to Finance Acquisitions), whereas Polkomel has said that it plans to issue bonds worth up to four billion zlotys (US$1.3 billion) to fund acquisitions. For Netia, the purchase would be most notably about scale benefits to its operations, while Polkomtel currently the largest cellular carrier, could use the fixed-line business to establish itself a convergent portfolio. In negotiations the latter may benefit from having KGHM as one of its shareholders, since the acquisition would likely drive up its value as an asset.

• Other Suitors and Available Assets: Of the other potential bidders, incumbent TP can probably be ruled out for anti-trust reasons; the dominant fixed-line provider, it would be unlikely to receive a regulatory approval to buy Dialog. Deutsche Telekom's local mobile unit, PTC, has not expressed its interest but might come into question, given that it already has a modest presence in the fixed-service sector (see 30 July 2010: PTC Starts Selling Fixed-Mobile Bundles in Poland). Poland's pay-TV operator, Cyfrowy Polsat, on one hand has an obvious strategy to challenge TP on an increasingly convergent basis, but on the other hand appears to be inclined to do this namely via wireless technologies—and as such, might be keener to invest for example in Polkomtel instead (see Poland: 4 June 2010: Owner of Cyfrowy Polsat Could Bid for Controlling Stake in Polkomtel—Interview). In the meantime, other telecoms firms that—besides Dialog and Polkomtel—make possible takeover targets in Poland include, most significantly, backbone carriers Exatel and Telekomunikacja Kolejowa (see Poland: 26 July 2010: Poland's National Railway Operator to Sell Telecoms Assets and Poland: 22 July 2010: Exatel Sale Draws Closer in Poland As Owner PGE Chooses PwC As Advisor), as well as the most valuable of all, the fourth largest mobile operator Play.