Tele2 Group and Com Hem Holding said they are merging to create Sweden’s second largest mobile telephony and fixed broadband provider, as Tele2 seeks to focus on the Baltic Sea region after strategic moves elsewhere. Tele2 is absorbing the Swedish cable operator but Com Hem's CEO Anders Nilsson will take over as CEO of the enlarged Tele2 from Allison Kirkby.
The merged entity will have 3.9 million mobile customers, 800,000 broadband customers and 1.1 million digital TV subscribers. It will have a 4G network population coverage of 99.9 percent and its broadband network will cover almost 60 percent of Swedish households. The deal is expected to complete in the second half of 2018.
Tele2 said that after several strategic actions including transactions in Kazakhstan, Austria and more recently in the Netherlands, it is a "clear leader" and "customer champion" in the Baltic Sea region. As part of these strategic efforts, Sweden has become an increasingly important market for Tele2. The acquisition of TDC Sweden accelerated and strengthened Tele2’s B2B strategy. Com Hem has significantly strengthened its position by focusing on customer satisfaction, investments in infrastructure and services and a single dwelling unit (SDU) expansion programme, boosted by the acquisition of Boxer in 2016.
Com Hem and Tele2 will distribute the stated ordinary dividends for 2017 of SEK 6 at Com Hem and SEK 4 at Tele2. Com Hem has an existing share buyback programme running to 20 March 2018 at the latest.
Both operators expect to hold Extraordinary General Meetings (EGMs) in the second half of 2018 to vote on the deal. Tele2’s and Com Hem’s largest shareholder, Kinnevik, has pledged to vote in favour of the merger and will carry out any pro-competitive measures required to complete the deal. Competition authorities will have to grant approval.
The merger is expected to yield total annual opex, capex and revenue synergies of around SEK 900 million within five years, and to add to free cash flow per share from the first year after completion. Integration costs to realise the synergies have been estimated at around SEK 600 million in total, most of which should be incurred in the first three years.
The preliminary combined net sales for the twelve months ended 30 September 2017 were approximately SEK 31.8 billion with an adjusted EBITDA of SEK 9.2 billion and operating cash flow of SEK 6.1 billion, of which Sweden accounted for approximately SEK 22.8 billion of net sales, SEK 7.2 billion of adjusted EBITDA and SEK 5.2 billion of OCF. On a preliminary combined basis, Sweden accounted for approximately 72 percent of the enlarged Tele2’s net sales and 78 percent of adjusted EBITDA for the twelve months to 30 September 2017.
Com Hem shareholders will receive SEK 37.02 in cash plus 1.0374 x B shares in Tele2 for each share in Com Hem. This gives Com Hem shareholders about 26.9 percent ownership of the enlarged Tele2 and a total cash consideration of SEK 6.6 billion. The offer values Com Hem at SEK 146.00 per share, representing a premium of 15.9 percent over the last 30 trading days’ average price.
Current Com Hem chairman Andrew Barron is expected to join Tele2’s board of directors, along with at least one more Com Hem board director. The Tele2 board will be chaired by Georgi Ganev.
