Austrian mobile network operator T-Mobile Austria, a subsidiary of German telco Deutsche Telekom, will take over UPC Austria, the country’s largest cable operator, for around €1.9 billion from parent company Liberty Global.
Through the acquisition T-Mobile Austria will gain a strong foothold in the fixed-line market, enabling it to offer quadruple play products to its customers: TV, internet, fixed-line telephony and mobile services. The move will also put Austria’s second-largest mobile network operator in a position to intensify competition with market leader A1 Telekom Austria.
“With this acquisition Deutsche Telekom is taking another major step to realise our strategy to become a fully converged operator in our European footprint. The acquired cable network will be a perfect match with our modern mobile network. It will allow customers to benefit from extended scope of services with fixed and mobile offerings from one source. We see a significant potential to accelerate growth in the Austrian market,” said Srini Gopalan, Board Member Deutsche Telekom for Europe.
Mike Fries, CEO of Liberty Global, said: “This transaction highlights the strategic and financial value of our fibre-rich networks in a rapidly converging world and the significant synergies inherent in fixed-mobile mergers. We have operated in Austria for over 20 years and are extremely proud of the market-leading position we’ve built in both digital video and super-fast broadband.”
“Looking forward, we believe the combination of UPC Austria and T-Mobile Austria will provide the national scale necessary to compete with larger companies like A1, and provide residential and business consumers with the highest quality services at the best price,” added Fries. “We remain focused on value creation for our shareholders and are pleased with the premium valuation being attributed to one of our smaller operating markets.”
Eric Tveter, CEO Central Europe of Liberty Global, said: “The merger of UPC Austria and T-Mobile is one of the largest deals in Austria in the past 10 years. The purchase price offered by T-Mobile clearly underlines UPC Austria’s high level of expertise in the Austrian market. As a result of the agreement, T-Mobile will in future be able to count on the most powerful data infrastructure in the country of UPC Austria. A new mega-player for fixed-line and mobile telephony will be created, sparking new dynamics in the market.”
The merged company will have around 6.7 million revenue generating units (Q3 2017) including 5.2 million T-Mobile Austria mobile customers. UPC Austria covers 36% of Austrian households, mostly in urban areas. On September 30, 2017, UPC Austria’s network passed 1.4 million homes and served 654,000 customers who subscribed to 513,000 broadband, 468,000 video and 450,000 voice services. The combined revenue of both companies is expected to reach €1.2 billion in 2017 based on pro-forma calculations.
The sale price of €1.9 billion represents a multiple of nearly 11x UPC Austria’s estimated 2017 adjusted segment operating cash flow, as customarily defined by Liberty Global, or approximately 34x UPC Austria’s estimated 2017 operating free cash flow.
The cash value of the synergies amounts to €0.8 billion after integration costs, according to Deutsche Telekom, representing a meaningful value creation opportunity. Cost and capex efficiencies are expected to deliver 80% of the synergies, for example in areas like IT and network operations.
Liberty Global has agreed to provide certain transitional services for a period of up to four years. These services principally comprise network and information technology-related functions. The annual charges will depend on the actual level of services required by T-Mobile Austria. Liberty Global will also allow T-Mobile Austria to use the UPC brand for a transitional period of up to three years.
The transaction, which is still subject to approval by the relevant competition authorities, is expected by the companies involved to close in the second half of 2018.
The sale of UPC Austria doesn’t come as a surprise as there had been rumours about Liberty Global exploring the sale of its cable subsidiaries in Switzerland and Austria since November 2017. The move could pave the way for a large-scale merger of Liberty Global and Vodafone, a scenario the industry has been speculating about for years.