Deutsche Telekom is reportedly preparing to put its Dutch unit T-Mobile Netherlands up for sale. Possible bidders are not obvious, apart from EQT, owner of fixed network assets in the Netherlands, or the private equity investor Parcom, which runs the Dutch MVNO Simpel. DT could also choose an IPO. We estimate the Dutch operator could be worth EUR 3.5-4.0 billion.
According to German media reports, DT is looking at selling minority stakes in T-Mobile NL or its towers arm Deutsche Funkturm in order to help reduce debt. An IPO of the Dutch unit is also possible, giving Telekom another listed subsidiary. There are not many candidates to buy the operator, apart from EQT, which could then consolidate the Dutch market further and have its own mobile network. Parcom could also make a bid, turning Simpel into a full network operator. T-Mobile Netherlands also includes Tele2 since the start of this year, but its towers have been separated from the company, suggesting a reasonable price for the company of around EUR 3.5-4.0 billion.
No deal in 2015, not core, but streamlined
Similar rumours appeared from October 2015 that T-Mobile NL was for sale. DT reportedly wanted then EUR 5 billion (7-8x EBITDA). Warburg Pincus reportedly offered EUR 3 billion. Later reports suggested DT was willing to drop the price to EUR 3.6 billion, but no deal was reached. In February 2016, T-Mobile was apparently taken off the market, but a few weeks later Apollo was thought to have offered EUR 2.5 billion, while DT was willing to consider EUR 3 billion.
At the end of 2016, DT created the division Group Corporate Development for its non-core activities, including T-Mobile NL, Deutsche Funkturm, DT Capital Partners, Scout24, Stroer and its stake in BT. The Dutch unit is apparently not core as it does not have its own fixed network. It also no longer owns its towers, as these were transferred to Deutsche Funkturm after the takeover of Tele2 Netherlands.
Since then, the management has changed, the company was streamlined (the 'Lean Telco' programme) and a new growth strategy launched. This includes a number of 'un-carrier' measures, similar to those used by T-Mobile US and other markets where Telekom is the challenger. These also included a number of promises made at the time of the Tele2 acquisition:
- Unlimited mobile data.
- Start of a fibre network rollout (in partnership with investor Primevest).
- Expansion of the active FTTH network using the passive networks of KPN and Primevest.
- End to speed-based pricing for fixed broadband (new 'Uit & Thuis' offer for EUR 50 per month).
- Lobbying for lower wholesale rates at KPN and access to Ziggo's cable network.
- Acquisitions, such as Vodafone Thuis (December 2016) and Tele2 (January 2019). T-Mobile NL is now 75 percent owned by DT and 25 percent by Tele2 Group.
No hurry, EQT and Parcom possible bidders, along with IPO
At its Capital Markets Day in May 2018, DT said that T-Mobile NL 'still had a long way to go' and around 30 percent of overhead jobs would go. It now has more employees (2,200) than at the time of the Tele2 takeover (2,075). The margin has also fallen since the investors day, to 31.9 percent from 33.6 percent. This all suggests DT will not be in a hurry to sell.
There is no especially obvious candidate to buy T-Mobile NL, apart from EQT, which could consolidate the Dutch market further after buying the fixed operators Delta, Caiway and Cbizz. Other possible bidders include private equity funds or trade buyers interested in mobile, such as Iliad or its founder's investment vehicle NJJ Capital, the 3 Group owner CK Hutchison or possibly Altice Europe or Germany's Freenet.
The price is difficult to predict. Only EQT and Parcom could profit from synergies, putting a limit on the price with other buyers. The lack of passive infrastructure (apart from the old Versatel network) also lowers interest from the many investors seeking acquisitions in fibre or towers these days. Tele2 does add something to the value, with more postpaid and broadband customers. An alternative is an IPO, giving DT yet another listed subsidiary alongside operators in Montenegro, Croatia, Hungary, Greece, the US and the minority stake in BT. Positives include the cash proceeds, a first step towards a complete sale and the possibility to acquire full ownership while maintaining control. The downside is the costs of a listing.
At a valuation of 6x EBITDA (roughly EUR 150 million per quarter or EUR 600 million per year), we end up with a price of EUR 3.6 billion. To widen the range, let's say EUR 3.5-4.0 billion. If the margin could be improved, EBITDA may increase to EUR 200 million, taking the price closer to EUR 5 billion. That won't be easy though. T-Mobile is in an expansionary phase, when the margin drops due to growth investments, prices are lowered, spectrum auctions are coming and a 5G network needs to be built.
