Reuters
Danish telecoms group TDC is buying Norway’s second-largest cable operator, Get AS, it said yesterday, part of its drive to counter falling revenues in its home market by expanding in other markets.
However, it also said funding the 12.5bn-Danish crown ($2.2bn) acquisition will reduce TDC’s dividend payout by a third this year, sending its shares down 7.4% to 42.95 crowns by 1138 GMT.
TDC, like other former state telecoms monopolies, has seen its fixed-line business hit by mobile phones, while its mobile business is also facing stiff competition, in part as consumers use cheaper Internet services to contact one another.
Get provides around 500,000 households and businesses in Norway with TV, broadband Internet and fixed line telephony services and increased its core earnings by 17% to 1.1bn Norwegian crowns ($172mn) in 2013 while its revenues climbed 14% to 2.4bn Norwegian crowns ($375mn).
“This acquisition will give our group a growth profile and give us another possibility to increase our cash flow going forward,” TDC’s chief financial officer Pernille Erenbjerg said.
GS Capital Partners, the private equity arm of Goldman Sachs , and investment firm Quadrangle bought Get from private equity firm Candover for around $1.1bn including debt in late 2007.
Sydbank analyst Morten Imsgard said TDC is buying Get to get sales growth, as it has a lack of areas in which it can grow. “But the price seems very high,” said Imsgard, who has a hold recommendation on TDC shares.
Revenues at TDC’s Nordic division operating in Norway, Finland and Sweden fell 3.7% last year to 4.264bn Danish crowns($740mn), with 22% of that revenue coming from TDC Norway. However, it reported a stong intake of mobile subscriptions in both Sweden and Norway, albeit with a lower average revenue per user (ARPU), and TDC Nordic’s gross profit last year rose 1.9% to 1.8bn crowns.
TDC’s group earnings before interest, tax, depreciation and amortisation (EBITDA) in 2013 fell 1.6% to 10.15bn Danish crowns on revenue down 5.8% at 24.61bn crowns.
The GET purchase price is 9.3 times expected EBITDA in 2015 and according to TDC is in the middle of the range when comparing with recent transactions in other European cable companies, which have been consolidating rapidly as telecoms companies seek to converge their service offers across telephony, broadband Internet and television. “That is despite the fact Get is the only European cable company which has had a double-digit growth on the top line for the last many years,” Erenbjerg said.
The purchase will be financed through a combination of senior unsecured EMTN bonds and hybrid bonds.
TDC said it will now only pay out 2.50 crowns per share in dividends in 2014 from a previous guidance of 3.70 crowns. “Now they need some other investors, because the ones that have invested in TDC as a dividend share, are leaving as TDC is becoming a more aggressive player,” said Alm. Brand Markets analyst Michael Friis Jorgensen, who has a neutral recommendation on TDC shares.
However, Erenbjerg said, the dividend will continue to be “an important part of the TDC story”.
TDC’s share price has fallen around 15% since August 7 when it told investors it had lost two local government tenders.
At the end of August Get had expected to receive binding offers from TDC and two private equity funds in a sale that could value the company at around €1.4bn ($1.8bn) including debt, sources familiar with the situation told Reuters.
TDC’s competitors include TeliaSonera and Norway’s Telenor.
JP Morgan acted as financial advisor to TDC, while Goldman Sachs and Deutsche Bank has advised Get, which is owned by the and investment firm Quadrangle.