Tele2 acquires Com Hem for €672m

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Swedish multiplay telco Tele2 and multiplay broadband operator Com Hem have agreed to merge, creating a leading integrated connectivity provider. The Merger will be implemented by Tele2 absorbing Com Hem.

The pair say the combination of two highly complementary businesses will create a leading integrated operator by combining an award-winning mobile network with the fastest national fixed network and the widest range of content in the market, allowing a superior customer offering meeting the demands of tomorrow.

  • Enhanced growth capitalising on increased fixed and mobile data consumption, underpinned by accelerated video demand, by offering a full range of complementary and ubiquitous high-quality connectivity and digital services
  • Well positioned to act as a customer champion in an integrated world to further improve customer satisfaction and loyalty

Beneficial for Tele2 and Com Hem shareholders

  • Expected total annual opex, capex and revenue synergies of around SEK 900 million to be achieved within five years and free cash flow per share accretive for Time from the first year after completion
  • Enhanced revenue growth and realisation of synergies creates significant capacity for attractive shareholder remuneration and strong cash conversion

Summary of the transaction

  • Com Hem’s shareholders will receive as merger consideration SEK 37.02 in cash plus 1.0374x B shares in Tele2 for each share in Com Hem outstanding as at completion of the Merger. Hence, Com Hem’s shareholders will receive approximately 26.9 per cent economic ownership in Enlarged Tele2 and a total cash consideration of SEK 6.6 billion
  • Based on the latest thirty trading days volume-weighted average share price of the Tele2 B share, the offer values Com Hem at SEK 146.00 per share, representing a premium of 15.9 percent compared to the last thirty trading days volume-weighted average price and a premium of 11.8 percent compared to the last closing price of SEK 130.60 on January 9, 2018
  • At completion of the Merger, Anders Nilsson will become the CEO of Enlarged Tele2 to drive the Combined Company through its next phase of growth
  • Tele2 and Com Hem will distribute stated ordinary dividends for 2017 to their respective shareholders in the amount of SEK 4 per share for Tele2 shareholders and SEK 6 per share for Com Hem shareholders. In addition, Com Hem has an existing share buyback program which ends no later than March 20, 2018
  • The completion of the Merger is subject to, inter alia, approval by the shareholders of each of Tele2 and Com Hem at their respective Extraordinary General Meetings (each, an EGM), which are currently expected to be held in H2 2018 as well as approval from the relevant competition authorities
  • Tele2’s and Com Hem’s largest shareholder, Kinnevik AB, has undertaken to vote in favor of the Merger at the respective EGMs and not to sell any shares in Tele2 or Com Hem (or in the Enlarged Tele2) up until six months after completion of the Merger, subject to customary conditions. In addition, Kinnevik has committed to participate in the European Commission merger control procedure and is prepared to effect pro-competitive measures if required to complete the Merger

Over the last few years, Tele2 and Com Hem have undertaken a period of active strategic development and continued long-term investment in their networks with the goal of better positioning the respective companies for the future, while simultaneously generating substantial value creation for their respective shareholder bases.

The pair say the combination of Tele2 and Com Hem is a natural next step for both companies and will create a leading integrated connectivity provider in the Swedish telecommunications market by combining a mobile network with the fastest national fixed network and the widest range of content in the market. Therefore, Enlarged Tele2 will be well equipped to meet the evolving customer needs for seamless connectivity and digital services. Digitalisation affects nearly every aspect of society and the Merger will further contribute to a better digital quality of life for Swedish individuals, households and businesses through a full range of complementary and ubiquitous high-quality connectivity and digital services.

The enlarged Tele2 will be the second largest mobile telephony and fixed broadband provider in Sweden and the market leader in digital TV with the ability to offer powerful customer solutions and capitalise on the increasing fixed and mobile data consumption underpinned by accelerated video demand. This will not only lead to improved customer experience and loyalty but also position the company for enhanced growth by meeting untapped customer demand for a full range of digital services and high-quality connectivity, no matter where or when the customer needs it.

This combination will strengthen and broaden the Swedish operations, for the Combined Company, vis-à-vis the two companies separately. This is in line with both Tele2’s purpose to fearlessly liberate people to live a more connected life as well as Com Hem’s overarching strategy of unleashing the power of Swedish homes and small businesses for the best possible digital quality of life.

Furthermore, the combination is expected to create significant value for all stakeholders with total annual opex, capex and revenue synergies estimated at around SEK 900 million to be achieved within five years, of which approximately half are opex and capex synergies and the other half are revenue synergies. The transaction is expected to be free cash flow per share accretive for Tele2 from the first year after completion.

Anders Nilsson will become CEO of Tele2 following completion of the Merger and will assume leadership of the Tele2 management team at this point in order to deliver on integrating the two companies and to deliver on the strategic objectives. It is expected that upon completion of the Merger, Andrew Barron currently Chairman of Com Hem along with at least one additional Com Hem Board Director will join the Board of Directors of Tele2, which will be chaired by Tele2’s proposed new Chairman Georgi Ganev.

The enlarged Tele2 will have an attractive financial profile. The Merger will build strength through increased scale and product diversification, enabling a more diversified revenue base and resilient cash flow generation. The Combined Company is expected to have significant capacity to both support Enlarged Tele2’s strategic ambitions, drive growth and to allow for attractive shareholder remuneration and returns.

Enlarged Tele2 will remain committed to covering shareholder remuneration with equity free cash flow and to returning excess capital to shareholders. It is envisaged that Enlarged Tele2 will increase shareholder remuneration relative to Tele2’s level today and grow it over time, enabled by strong cash flow generation. Furthermore, Enlarged Tele2 will be committed to retaining a credit profile consistent with an investment grade credit rating and to maintain the current leverage target of 2.0-2.5x over the medium term.

The Boards are of the opinion that the Merger is beneficial to the companies and the shareholders. The Board of Directors of Tele2 considers the merger consideration to be fair from a financial point of view to Tele2 and has obtained a fairness opinion dated January 9, 2018 from N M Rothschild & Sons Limited reflecting their opinion as of that date that, on the basis of the considerations stated therein, the merger consideration to be paid by Tele2 is fair, from a financial point of view, to Tele2. The Board of Directors of Com Hem considers the merger consideration to be fair, from a financial point of view, to the holders of Com Hem common stock (other than Tele2 and its affiliates) and this view is supported by a fairness opinion from Bank of America Merrill Lynch, acting as financial advisor to the Board of Directors of Com Hem, dated as of January 9, 2018, to the effect that, as of such date and based upon and subject to the assumptions and limitations set forth therein, ‎the merger consideration to be received in the Merger by holders of shares of Com Hem common stock (other than Tele2 and its affiliates) is fair, from a financial point of view, to such holders.

Taking into consideration the time required for the regulatory approval process and the statutory period of notification for the known and unknown creditors, the Merger is expected to be completed during H2 2018.

Mike Parton, Chairman of the Board of Directors of Tele2, said: “We are delighted to have reached agreement to combine two great Nordic companies to create a leading integrated connectivity provider in the Swedish market. I take great pride in the outstanding returns Tele2 has delivered to its shareholders over the past years and the value we have delivered to our customers. I am excited for the future of the Combined Company which we are confident will create significant value for Swedish individuals, households, businesses and of course our investors.”

“Allison Kirkby has led Tele2 through a challenging period with great energy and commitment. She has successfully reshaped the business and the strategy of the group and prepared it for the Merger which we announce today. The financial performance and shareholder returns generated have been outstanding and speak volumes for the quality of her leadership. We as a Board would like to thank her for everything she has done for the Tele2 group and especially for her pivotal role in laying solid foundations from which Enlarged Tele2 can prosper.”

“In this exciting new chapter for Tele2, the Board would like to welcome Anders Nilsson as the incoming CEO at completion. His broad and deep operational experience in the Nordic media and connectivity market makes him extremely well suited to lead Tele2 to drive integration and delivery of the significant value creation potential that this transaction enables.”

Kirkby, CEO of Tele2, said the transaction would strengthen and diversify the Combined Company’s Swedish operations while increasing the long-term cash flow resilience. “Enlarged Tele2 will be able to provide a wide range of complementary connectivity and digital services; a base that makes us well positioned to act as a customer champion in an increasingly integrated world. This transaction will make Tele2 stronger, more diversified in its home market, and better equipped to fearlessly liberate people to live a more connected life.”

“When I began my leadership role at Tele2 I had three overarching objectives: to drive returns through disciplined capital allocation; to focus the group on those markets where we knew we could win; and to become the leading connectivity provider in the Baltic Sea region with a strong emphasis on the consumer. With today’s announcement all of these objectives have now been achieved and I am incredibly proud of the Tele2 team and all we have accomplished over the past four years. I am confident that, at completion, I will hand over a company in very good shape and with Anders Nilsson and the current Tele2 management team leading the organisation, it is in great hands to be even more successful going forward.”

“Merging is the best possible next step for both companies as it will enable us to meet the demands of tomorrow and unleash the power for the best possible digital quality of life in Sweden,” commented Nilsson, CEO of Com Hem.” I am proud of the progress we have made during the last few years in improving our products and services leading to increased customer satisfaction, expanding our footprint while delivering on all our financial targets. The transaction will create significant benefits to Swedish individuals, households, businesses and to the shareholders of Tele2 and Com Hem.”

“I am humbled by the responsibility and enormously excited by the opportunity to lead Enlarged Tele2 as Group CEO. The Combined Company will be very well-positioned for the future to meet the expectations of our shareholders, customers and employees. I’m looking forward to working with the Tele2 Board and colleagues of the Enlarged Tele2 to make these two great companies stronger together.”


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