Deutsche Telekom to buy 20% of OTE for €2.5bn (Germany)German incumbent looking for management control but not full buyout of Greek operator; eastern European ops key to deal.
Deutsche Telekom Monday announced it will acquire a stake of close to 20% in Greek incumbent OTE for around €2.5 billion and aims to gain management control of the telco.
The German operator said it has entered an agreement to acquire the OTE shares held by private equity firm Marfin Investment Group (MIG).
“The execution of this agreement is conditional upon Deutsche Telekom’s Supervisory Board,” said Deutsche Telekom, in a statement.
MIG has been steadily raising its stake in OTE for several months, and now owns 98.3 million shares, making it the largest shareholder behind the Greek government, which controls 28.03%.
Furthermore, Deutsche Telekom said it also plans to propose a shareholder deal with the Greek government to further increase its OTE stake, although it does not plan to acquire all the operator’s shares.
“Deutsche Telekom expects to initiate discussions with the Greek government with the aim to reach an agreement in the very near future,” said Deutsche Telekom.
Greek Prime Minister Costas Karamanlis last week announced that Greece is considering altering legislation which caps private investment in strategically sensitive sectors, but insisted it would not remove the restrictions altogether.
The announcement came as local press reports revealed that OTE had begun negotiating with major European telecos including Deutsche Telekom.
“Withdrawing the legislation is out of the question, but we’ll see whether it needs to be improved,” said Karamanlis at a news conference in Brussels.
Analyst firm Ovum believes that Deutsche Telekom’s interest in OTE lies in its mobile operations in Bulgaria, Macedonia, Romania, and Albania.
“DT is buying the top-line growth that these countries can bring to T-Mobile over the next few years, plus the added opportunity to leverage scale economies across its European mobile footprint,” said Mike Cansfield, telecoms strategy practice leader, Ovum, in a research note.
Deutsche Telekom CEO Rene Obermann has repeatedly called for consolidation in the European mobile sector as a means to counter ongoing price deflation.
Cansfield added that ongoing global financial uncertainty could be putting off private equity firms from making big acquisitions.
“MIG pulling out of OTE could well be an indicator that private equity is starting to pull back from the telecoms sector,” he said. Therefore, Europe’s bigger telcos are now likely to be the major drivers of industry consolidation, he said.
“The DT/OTE link seems to indicate the larger incumbents with free cash flows now look to be the most likely agents of change. Two years ago few would have thought this likely,” said Cansfield.
“Today’s market is becoming more complex, and the bigger the enterprise the more likely it is to control its destiny. Expect more consolidation, not less,” he added.
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