Debitel Pays US$756 mil. for TDC's German Unit

TDC has agreed to sell its wholly-owned German mobile services provider, Talkline, to its local rival, Debitel, for 560 million euro in cash on a debt-free basis. The transaction is subject to approval from the EU competition authorities. TDC expects to make an after-tax gain of 3.3 billion Danish kroner (US$598 million), which will be included in the third-quarter income statement under special items.

Last year, Talkline posted earnings before interest, taxes, depreciation and amortisation (EBITDA) of 85 million euro on sales of more than 1 billion euro.

Outlook and Implications

Consolidation In Germany: The acquisition will give Debitel access to Talkline's 3.8 million customers, which will expand its user base to nearly 13 million. Debitel, which had 9 million customers at end-2006 and sales of 2 billion euro, expects that the merger will allow the company to compete more effectively against the German incumbent, Deutsche Telekom, which dominates the mobile and broadband markets. The acquisition of Talkline fits Debitel's strategy of expanding its domestic business in Germany through a more aggressive marketing and distribution strategy. Debitel—which has been owned by private equity fund Permira Advisers LLP since 2004—itself underwent business reorganisation in 2006 following the disposals of its subsidiaries abroad in an effort to focus solely on the domestic market (see Germany: 28 November 2006: Debitel Plans to Focus on Growth in 2007 and Germany: 21 November 2006: Debitel Plans to Dispose of European Units to Focus on Germany).

Restructuring At TDC: TDC, which is Denmark's leading telecoms group, has been undergoing a major restructuring following the US$15.3-billion leveraged buy-out in December 2005 by a private-equity consortium, which included Apax Partners, Permira Advisors LLP, Blackstone Group LP, Providence Equity Partners, and Kohlberg Kravis Roberts & Co. The private equity investors have been streamlining the company's operation in a drive to make it more profitable. The reorganisation involves merging several of its subsidiaries, which will take effect from 1 July and will apply retroactively from 1 January 2007. TDC's Nordic division will be reorganised into four units: Business Nordic, Fixed Nordic, Mobile Nordic and Cable TV. TDC will merge with its subsidiaries, TDC Totalloesninger, TDC Mobile International, TDC Services, TDC Mobil and certain minor subsidiaries, while TDC Kabel TV will continue as a separate legal entity (see Denmark: 1 May 2007: TDC Plans Business Reorganisation and Europe: 23 February 2007: TDC Plans Business Reorganisation). The move, which follows a 28.5% year-on-year (y/y) fall in end-2006 net income is aimed at the simplification of the group's legal structure, as well as creating cross-operational synergies. The strategic changes involve selling off its European operations to focus on its Scandinavian home market. TDC pulled out of the United Kingdom's MVNO market in November 2006, while earlier this year, the group sold its Lithuanian mobile unit, Bite, to the London-based private equity fund, Europa Partners, for US$583 million (see Lithuania: 22 January 2007: TDC Agrees to Divest Bite for US$583 mil. and Germany: 14 November 2006: TDC Renames German MVNO, Closes Down easymobile UK Operations). In addition to Germany's Talkline, its other assets marked for sale include TDC's Hungarian unit, Hungarian Telephone & Cable Corp (HTCC), which is now Hungary's leading alternative telco, and the Swiss telco and ISP, Sunrise (see Hungary: 10 January 2007: TDC's Hungarian Unit Acquires Invitel). TDC has also disposed of property assets as part of the business restructuring measures (see Europe: 5 February 2007: TDC Plans Disposals of Non-Scandinavian Units).