German MVNO Drillisch and Germany-based internet services provider United Internet unveiled a plan to merge United Internet’s fixed and mobile service providing activities with Drillisch. Effectively, United Internet subsidiary 1&1 Telecommunication will be acquired by Drillisch, creating a fourth full telecom service provider in the Germany. The acquisition includes the retail business of 1&1 Versatel, which was incorporated in 1&1 Telecommunication on 2 May and excludes the B2B and wholesale activities of 1&1 Versatel. However, 1&1 Versatel will continue to provide services for the combined business on the basis of its fiber-optic network. In this transaction, 1&1 Telecommunication SE is valued at EUR 5.85 billion.
As an alternative for short-term investors, United Internet will submit a voluntary public tender offer to all Drillisch shareholders that relates to the acquisition of all outstanding Drillisch shares. United Internet passed a resolution to this effect on 12 May. This will present Drillisch shareholders with a choice: They can continue to hold their Drillisch shares and benefit from the potential for growth and synergies created by the transaction, or they can tender their no-par value bearer shares at the price of EUR 50 per share, which is 8.2 percent more than the volume-weighted average share price of Drillisch shares over the past three months as on the reporting day 11 May 2017 (EUR 46.20).
The cash offer will be made in accordance with the terms specified in the offer document, subject in particular to merger control approval. There will be no minimum acceptance threshold. The acceptance period for the tender offer is expected to begin at the end of May 2017 following approval of the offer document by the German Federal Financial Supervisory Authority (BaFin) and is expected to end at the end of June 2017. United Internet will use bank loans to finance the Drillisch shares tendered as part of the tender offer. Subject to merger control approval, the entire transaction is expected to be completed at the end of 2017.
The business combination agreement defines in particular the procedure and the conditions of the tender offer, the Capital Increases I and II as well as the corporate governance of Drillisch subject to the outcome of the tender offer and both capital increases. It is agreed that Vlasios Choulidis, Executive-Board Spokesman of Drillisch, will step down from operational management and move on to the Drillisch Supervisory Board following the conclusion of the overall transaction. The combined company is to be led by André Driesen, Director of Finances at Drillisch, as well as 1&1 Telecommunications director Martin Witt and United Internet CEO Ralph Dommermuth as CEO. The completion of the tender offer is subject to merger control approval by the German authorities (Bundeskartellamt).
1&1 Telecommunication (including 1&1 Versatel's retail business) and Drillisch together have more than 12 million customer contracts according to the 2016 business figures, and had combined sales of over EUR 3.2 billion. During the first quarter (thus without the 1&1 Versatel retail business), 1&1 Telecommunication SE increased its sales by 6.2 percent to EUR 619.4 million compared with the first quarter of 2016. The company's EBITDA rose by 12.9 percent to EUR 109.0 million compared to the previous year. Thus, the company is on track to reach its EBITDA target for the fiscal year of around EUR470 million.
The integration of 1&1 Telecommunication into Drillisch offers extensive synergies and growth opportunities for both United Internet and the Drillisch shareholders. These jointly-identified synergies are expected to arise at the level of their combined business starting in 2018. An annual volume of EUR 150 million is anticipated as early as 2020, rising to EUR 250 million annually by 2025. These figures assume the successful implementation of the overall transaction. Synergies will result in particular through joint purchasing of hardware and services, more efficient use of Drillisch's available network capacity, the expansion of the 1&1 product portfolio to include future technologies, and the availability of a larger product portfolio in Drillisch's stores. To achieve these synergies, the companies expect one-off implementation costs of around EUR 50 million at the combined business level. All shareholders of both Drillisch and United Internet will benefit over the long term from these synergies and pooled potential through value increases and dividends.
Following the successful implementation of both capital increases, United Internet will be Drillisch's new majority shareholder with a share of around 72.7 percent plus those shares tendered into the tender offer. United Internet would thus fully consolidate the merged business of and 1&1 Telecommunication in its annual and quarterly financial statements. Drillisch is to remain an independent listed company and will continue to maintain an independent dividend policy. J.P.Morgan and Hengeler Mueller advised United Internet on the transaction. Bank of America Merrill Lynch and Sullivan & Cromwell acted as advisors to Drillisch.
