Consolidation alert in Germany! Telefonica, which runs the fourth-ranking O2 Germany, intends to buy the third player, E-Plus, at a valuation of €8.1 billion ($10.7 billion) – and in the process, the combined operation would become number one by subscriber count.
The Dutch operator group KPN owns E-Plus and, if the deal goes through in mid-2014 as planned, it will get €3.7 billion in cash and newly issued shares in Telefonica Deutschland – it would end up with a 17.6 percent stake in the combined operation. Telefonica would also pay an additional €1.3 billion in cash for 7.3 percent of KPN.
Deutsche Telekom (T-Mobile) is the number one German mobile operator, with 37 million subscribers. Vodafone follows with 33.9 million. E-Plus has 23.9 million and O2 has 19.3 million – combined, they would hit top spot with 43.3 million subscribers.
Interestingly, the strategy appears to be focused on mobile data – as a recent survey in the UK showed, this is increasingly the top priority for mobile customers. As E-Plus CEO Thorsten Dirks put it:
“In Germany we are implementing the next phase of our strategy towards a data-centric Challenger, which already resulted in strong postpaid net adds and data growth in the first half of 2013. I can assure you that we will remain fully focused on executing our operational strategy and will be committed to our customers and employees.”
KPN CEO Eelco Blok, meanwhile, talked about “substantial operational synergies”: a reference to the idea that the combined operation would “unlock” €5-5.5 billion in savings and additional revenue.
There are two hurdles in the way: KPN board approval and regulatory approval. As the deal doesn’t involve the German market leaders Deutsche Telekom and Vodafone, I suspect the German regulators will give the deal the all-clear.
At the European level, carriers have been quite vocal in recent years about their desire for consolidation. With falling voice and SMS revenues, and with no-one having quite figured out how to build added value on top of commoditized mobile data, business is getting harder and the value of “synergies” becomes ever more apparent.
With digital agenda commissioner Neelie Kroes determined to eliminate roaming premiums within the EU in the coming year, it is quite likely that the European Commission will smile on a certain degree of consolidation, as a quid pro quo thing.