France Telecom and TDC have reached an agreement to combine their respective Swiss subsidiaries, Orange Switzerland and Sunrise. France Telecom will pay a net EUR 1.5 billion to TDC as part of the deal, which will see the French operator become a 75 percent shareholder in the combined entity and TDC holding the remaining 25 percent. The new operator will have approximately 3.4 million mobile and 1.1 million fixed and broadband customers, good for a 38 percent market share on the mobile market and 13 percent market share on the fixed broadband market. For 2008, the combined entity would have generated total pro-forma revenues of CHF 3.1 billion and EBITDA of CHF 809 million. The combination and integration of Sunrise and Orange Switzerland is expected to generate synergies of EUR 2.1 billion (CHF 3.2 billion). The estimated opex-based synergies, arising in particular from network & IT, distribution, marketing and workforce optimisation, are expected to reach an annual run-rate of CHF 200 million, with cumulative integration costs estimated at CHF140 million between 2010 and 2015. The capex synergies are expected to reach CHF 570 million, with a run-rate capex savings of CHF 65 million per annum from 2015. Current Orange Switzerland CEO, Thomas Sieber, will be the CEO of the combined entity, while Christoph Brand will continue as Sunrise's CEO up until the completion of the transaction. Post-closing Brand will help supervise the initial integration, before moving on to pursue new executive opportunities outside of the combined entity.
The combined entity will have a share buyback programme targeted at TDC’s 25 percent stake to be executed at the discretion of the board using cash generated by the company. If decided, the annual share buybacks will be executed in the first quarter of 2012, 2013 and 2014, on the basis of pre-agreed multiples applied to prior year EBITDA and determined on the basis of a target net present value of EUR 1.2 billion for the full 25 percent TDC stake. Furthermore, TDC will have the right to sell its stake to third-parties from the second anniversary of closing or to do an IPO of the company from the third anniversary of closing. In addition, France Telecom will have an option to buy TDC’s shares from the first anniversary of closing at a minimum value of EUR 1.2 billion, compounded at a rate of 7 percent per annum. In connection with the exit routes, the following mechanism is put in place: France Telecom to pay EUR 100 million per year to TDC in each of 2012, 2013 and 2014 (representing around EUR 245 million of NPV), but such payment(s) will not occur in the respective year(s) in which the share buyback is implemented, or if the France Telecom call option has been exercised, and these payments may be reduced or reimbursable under certain exit scenarios for TDC (exercise of France Telecom call option, IPO or sale to a third party). Prior to signing the final transaction documentation, which is expected to take place in the second half of February 2010, both TDC and France Telecom will undertake a confirmatory due diligence. The completion of the transaction will furthermore be conditional upon the approval by the relevant competition and regulatory authorities.
