Deutsche Telekom confirms €900mn deal to take full control of Slovak Telekom

By bne IntelliNews May 19, 2015

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Germany's Deutsche Telekom confirmed on May 19 that it has agreed a €900mn deal to acquire Bratislava's 49% stake in Slovak Telekom. Slovakia is likely to use the cash to take control of the country's dominant power producer.

The transaction will see the German giant take full ownership of Slovakia's former telecommunications monopoly. The deal is not subject to regulatory approval and is expected to be completed in the coming weeks, Deutsche Telekom said in a statement.

Under the terms of the agreement, €100m of the purchase price will be set aside in an escrow account for a specific time period, Deutsche Telekom said in a statement. Unnamed sources told Bloomberg in early May that the cash will be parked "until pending legal disputes are settled".

The parties also agreed Slovak Telekom will resume dividend payouts. That will hand Bratislava €16mn from 2014 net profit. The pair has previously clashed over Deutsche Telekom's block on dividends.

Twin track

Deutsche Telekom's acquisition is in line with the company's strategy to become the leading integrated pan-European telecom operator, the German company said.

"As the only operator in Slovakia with quad-play capabilities, Slovak Telekom is a highly attractive asset," Deutsche Telekom board member Claudia Nemat commented in a company statement. "It is the market leader in fixed line, fixed broadband and pay-TV, as well as the second largest mobile player in Slovakia. Furthermore, it is the second of our subsidiaries to already offer an all-IP network."

"The acquisition of the remaining shares allows for simplification of the capital and governance structure of Slovak Telekom," the statement continues. "In addition, the transaction eliminates the cash leakage from dividend payouts to minority shareholders going forward."

The enthusiasm expressed by the buyer is at odds with its earlier approach. Bratislava had tried for some years to persuade Deutsche Telekom to take the minority stake off its hands, but to no avail. It was only when the state moved to sell it publicly that the German telecom changed its tune.

Bratislava announced in March that it planned to sell the stake through an initial public offering (IPO) on the Bratislava and London stock exchanges. However, at the last minute on May 7, it announced it was scrapping the float as it had received a better offer from a strategic investor. Although no name was mentioned at that time, several sources claimed it was the German company.

"We pursued the so-called dual-track sale of our stake in Slovak Telekom and the sum offered by Deutsche Telekom is above the public offering valuation for (the state-owned) shares set at about €750mn," Slovak Finance Minister Peter Kazimir says.

Slovak Telekom Group posted consolidated revenues of €187mn in the first quarter of the year, 1.7% down on the year.

New number

The IPO had looked likely to raise no more than €750mn, well below the €1bn targeted by Bratislava. The proceeds are likely to provide the funds to power a bid by the state to increase its 34% stake in power producer Slovenske Elektrarne to gain control.

Italian utility Enel put its 66% stake in Slovakia's dominant power producer up for sale in the summer, and said it received three binding bids by the deadline on May 9. The stake is estimated to be worth €2bn-3bn.

However, under extreme pressure from the government, the Italian company seems to have given up its plans to exit the Slovak company immediately. One day before the deadline, Enel said the sale process could be divided in two phases, with "part" of the stake to be sold to Bratislava and the remainder offloaded to private investors at a later date.

At the same time, the ruling Smer party also needs money to help the country's fiscal management, especially as it rolls out increased spending ahead of elections scheduled for March next year. The government had earlier said it was likely to use the proceeds from the Slovak Telekom sale to cover financing needs in 2015.

Prime Minister Robert Fico is thought likely to unveil his second package of populist measures by the end of this week. According to Hospodarske Noviny, the plan might include lowering VAT on food. Kazimir the proceeds would help lower state debt, which sits close to constitutional limits.

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