Global Insight Perspective | |
Significance | Deutsche Telekom has taken a 20% stake in OTE, fulfilling the Greek government's desire for a European core investor. |
Implications | Given the suitability of Deutsche Telekom to the Greek government's wishes, the government is expected to cede further control of the incumbent, eventually giving Deutsche Telekom control of OTE. |
Outlook | The deal gives Deutsche Telekom further presence in South-East Europe and will help the company to limit its exposure to a poor performance in Germany. |
Deutsche Telekom has confirmed it will buy a 20% stake in Greece's dominant telecoms company, Hellenic Telecommunications Organization (OTE), in a deal that is bound to please the Greek government. The deal, valued at around 2.5 billion euro (US$3.89 billion) will give OTE the sort of strategic investor that the Greek government has long sought. In statements released in both the German city of Frankfurt and the Greek capital, Athens, Deutsche Telekom said it will pay 26 euro for each the 98.03 million shares in OTE held by the Greek private equity firm, Marfin Investment Group Holdings. Marfin is the second-largest shareholder in OTE, behind the Greek government, which owns a 28.03% stake. Deutsche Telekom said it also expects to initiate discussions with the Greek government, via the Inter-Ministerial Committee, to acquire an additional stake in OTE. "The execution of this agreement is conditional upon Deutsche Telekom's Supervisory Board approval as well as Deutsche Telekom entering into a shareholder agreement with the Greek government," Deutsche Telekom said in a statement.
Outlook and Implications
Pleasing the Greek Government: The interest of Deutsche Telekom in OTE is a big relief for the Greek government, which had held out for a strategic core investor for the company. As expected, the administration was in a positive mood over the latest development, although a senior ministry official told Reuters that many points of the agreement remain to be clarified. "The transaction is in line with the government's strategy for OTE," said Finance Minister George Alogoskoufis and Transport Minister Kostis Hatzidakis in a joint statement. In a privatisation programme that has dragged on since 2006, the Greek government has insisted it wants a major European telco to take over OTE and has rebuffed interest from Russian players. An initial interest from Telekom Austria disappeared in early 2007, forcing the Greek government to sell a 10.7% stake via a public placement in June 2007. Such was the government's despair that in October 2007 Alogoskoufis said there was little chance of a further share sale in OTE in the foreseeable future. "We made an enormous effort [to find a strategic investor] but there wasn't tremendous interest," he said. However, Deutsche Telekom has insisted it does not want a full takeover and will not increase its stake to the 33% required to trigger mandatory takeover (see Greece: 15 October 2007: Greek Finance Minister Rules Out Further Privatisation of OTE, 29 June 2007: Greek Government Sells 10.7% Stake in OTE, 28 June 2007: Greek Government Set to Begin OTE Privatisation, 4 January 2007: Government Outlines Plans for OTE Privatisation, 17 July 2006: Government to Reduce OTE Stake in 2007, Would Prefer Interest from European Telco, 3 April 2006: OTE for Sale in 2007 and 14 March 2006: Government Rules Out OTE Sale in 2006).
Seeking Growth Opportunities: Deutsche Telekom's latest acquisition is part of a push to diversify its operational base in a bid to limit the impact of tough operating conditions in Germany. Despite growing its international revenue by 10.2% in 2007, a 5.4% revenue decline in Germany forced overall group revenues to nudge up by only 1.9%. Having struggled to turn around the German business, the group is now clearly determined to expand abroad in order to offset more effectively the poor performance in Germany. Apart from the OTE deal, Deutsche Telekom has also expressed an interest in entering the Vietnamese mobile market. In 2006, Deutsche Telekom generated 52.9% of its revenue in Germany. However, by 2007, that figure had dropped to 49.1% and 2008 will likely see a bigger proportion of revenues coming from its international operations. Interestingly, Deutsche Telekom has stated it will consolidate OTE from 2009 and sees the Greek telecommunication company adding to the company's earnings per share from year one (see Vietnam: 7 March 2008: Deutsche Telekom Eyes Vietnamese Mobile Licence—Reports and World: 28 February 2008: Deutsche Telekom Posts Mixed But Stable 2007 Results).
A Perfect Fit: Behind the headlines, OTE is a perfect fit with Deutsche Telekom's operations in South-East Europe. Apart from Bulgaria and the Former Yugoslav Republic (FYR) of Macedonia where there are asset overlaps, the OTE deal will give Deutsche Telekom a foot in mobile markets in Albania, Greece and Romania, plus fixed markets in Greece and Romania. That is enough to give Deutsche Telekom a presence in 17 European markets, the same as Vodafone. Notably, many of the company's operations in the region will be under indirect control, either through OTE, or the Hungarian telecoms group, Magyar Telekom, of which the Greek incumbent owns 59.35% (see Europe: 30 June 2006: Consolidation in Europe's Telecoms Industry).