Deutsche Telekom's T-Mobile and the Tele2 Group have bundled their activities in the Netherlands into a joint venture. Deutsche Telekom will get a 75 percent share in the new company, while Tele2 will receive 25 percent and a one-off payment of EUR 190 million.
The combined entity will have around 5 million mobile customers and revenues of EUR 2 billion, making it the third-largest integrated operator in the Netherlands after KPN and VodafoneZiggo. Synergies are expected to be worth EUR 1 billion.
FMC competition
Tele2 has with the deal ensured the value of its investments in the Netherlands, after building its own mobile network there in the past few years. The joint venture must become a “customer champion” and will have a broader base for making investments, including into 5G. Allison Kirkby, CEO of the Tele2 Group, points out that the merger will accelerate development and benefits competition. She sees it as a logical follow-up to the network sharing agreement between the parties, which enabled Tele2 Netherlands to enter the mobile market.
Jon James, CEO at Tele2 NL, added that the transaction will create a competitor for the 'FMC duopoly' and that both the consumer and business market will be shaken up.
Søren Abildgaard, CEO of T-Mobile, said "this combination means justice for customers. This duo has been getting away with this game for far too long and there was only one victim, namely the customer! No more. No longer. We will be able to compete against the duopoly much more efficiently and give all Dutch customers a fair choice."
Dividend 70% of free cash flow
Before completing the deal, T-Mobile NL will spin out its mobile tower and rooftop assets into a separate legal entity, to be fully owned by Deutsche Telekom. Deutsche Telekom will also provide the new company a loan of EUR 1.1 billion.
The new company will have a dividend policy of 70 percent of free cash flow (defined by Deutsche Telekom as EBITDA minus capex). Dividends will be paid once debt is below 2.5x EBITDA, but it is not known how much debt the new company will start with.
The transaction still has be approved by the relevant competition authorities. It is expected to close in the second half of 2018. T-Mobile has agreed a break-up fee of EUR 25 million to pay to Tele2 if the deal does not get regulatory approval. Until closing, the operators will continue to operate as separate entities.
Tele2 will account for the activities as discontinued until the merger is completed. The company expects to take another impairment charge of EUR 100-150 on the Dutch activities, after already writing down EUR 250 million earlier.
