Hungary’s 4iG signs preliminary agreement to buy DIGI

Hungary’s 4iG signs preliminary agreement to buy DIGI
Prime Minister Viktor Orban and his proxy Lorinc Meszaros (right).
By bne IntelliNews March 29, 2021

Budapest-listed IT company 4iG, owned by a close associate of Prime Minister Viktor Orban, has signed a preliminary agreement to buy a 100% stake in the Hungarian subsidiary of Romanian-based telecommunication group DIGI, the company announced on the BSE website on March 29. The deal follows DIGI's exclusion from a 5G auction by the Hungarian authorities, and extends the reach of Fidesz loyalists into the strategic telecom sector.

The acquisition could be completed by September after due diligence and regulatory clearance, according to the statement.  Analysts expect the value of the deal to be around HUF100bn (€270mn).

With this acquisition, 4iG would be joining the group of the largest domestic broadcasters, companies providing broadband internet, landline as well as mobile phone services.

Analysts wonder whether the prospective change in ownership in DIGI will resolve its disputes with the Hungarian authorities. The company was excluded from participating in the 5G auction last year. The three incumbent telecom providers, Magyar Telekom, Vodafone and Telenor paid a combined HUF128.5bn for a 15-year concession.

The takeover of DIGI would  fit well with Viktor Orban’s strategy to boost domestic ownership in key sectors such as telecom through his favoured oligarchs. He has successfully reached that goal in energy, banking and the media, partly by harassing foreign investors and others outside his circle until they agree to sell up.

At a recent conference, the prime minister said his government will seek to raise the share of domestically-owned companies above 50% in the information and telecommunication, construction materials and rail carriage sectors.

The expansion to the mobile and cable television market by an Orban loyalist worries those concerned with media freedom. Hungary’s second-largest cable television has been taken over by Jozsef Vida, the owner of Takarekbank, the bank involved in the merger with MKB and Budapest Bank, which would create the second-largest commercial bank in Hungary. Tv2 was then turned into another mouthpiece of the government.

4iG's surge from obscurity to being a high-flyer in a matter of years is a perfect example of how the new business elite loyal to Orban has strengthened its grip in major sectors of the economy.

Hungary's most powerful oligarch, Lorinc Meszaros acquired the majority stakes in 4iG in 2018 through his flagship holding Opus Global, which has a rapidly growing business portfolio spanning hotels, agriculture, industrials, media, and energy.

Meszaros sold his stake to his business partner Gellert Jaszai in 2019, who now holds 62% of the shares. Jaszai is believed to be the right-hand man of Hungary’s richest businessman.

State tenders lifted 4iGs revenue nearly four-fold from HUF14bn in 2018 to HUF54bn in 2020. Net profit grew from HUF120mn to HUF3.4bn in the same period. 

In 2019 4iG made a bid to take over a heavyweight player on the information technology market. The deal to buy Deutsche Telekom’s unit T-Systems Hungary fell through on 4iGʼs initiative. There is only speculation that the need for the ownership change at 4iG came a few months before the bid for the German-owned company in order to spare Deutsche Telekom from dealing directly with Orban’s proxy, Lorinc Meszaros. Some suggested that Chancellor Angela Merkel would have found herself in hot water politically if an agreement was reached with people in the PM’s inner circle.

4iG has been on an acquisition streak recently, buying one company after the other in the IT sector with the aim of becoming a market leader in ICT services in Hungary.

The acquisition of DIGI fits this strategy. DIGI is a leading telecommunications service provider in Hungary, with 23 years of experience and a broad service portfolio covering cable TV, fixed internet and data, mobile telecommunication services, fixed-line telephony and DTH (Direct to Home) services, according to the statement. The company serves 1.1mn customers in Hungary. 

DIGI reported consolidated sales revenue of HUF70bn (€193mn) with ebitda of HUF19bn in 2020. DIGIʼs parent company is owned by a Romanian businessman of Hungarian descent, Zoltan Teszari.

 

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