AOL Mulls Euro Broadband Exit

AOL Inc. (NYSE: AOL), Portugal Telecom SGPS SA (NYSE: PT), and KPN Telecom NV (NYSE: KPN) are the lead players in the latest round of European service provider M&A action, with the intensely competitive broadband sector the catalyst for several possible company combinations.

When the going gets tough...
AOL, which has operations in France, Germany, and the U.K., is considering its future in the European broadband market. Industry sources have confirmed media reports, including a report today in U.K. newspaper The Guardian, that AOL has hired Citigroup to explore sale, partnership, and investment options that would lighten the parent company's load.

AOL declined to comment on what it calls rumor and speculation.

It was initially reported that AOL was seeking a way out of the French and German markets, but would retain its business in the U.K., where it is currently investing in its own DSLAM equipment and unbundling the local loop. (See Time Warner Invests in UK DSL.)

Now, though, the future of AOL (UK) Ltd. , which has more than 1.2 million broadband customers, is also up in the air, as Citigroup has been asked to sound out potential acquirers, partners, or investors for the British unit as well, a source close to the negotiations tells Light Reading.

That move follows an internal decision at AOL to concentrate on online service portal developments, and a number of announcements by rival U.K. broadband service providers that are bundling broadband as a "free" service along with fixed voice contracts or mobile accounts. (See FT Turns Orange, Orange Juices Free Broadband Battle, and Free Broadband Comes to the UK.)

One option is that AOL could bring in an investment partner for its European Internet access businesses in the same way that it sold a 5 percent stake to partner Google (Nasdaq: GOOG) in December 2005. (See Google Takes AOL Stake.)

In the event of an outright sale, the French and German units are believed to command a combined value of about €700 million (US$904 million). It's not known what sort of price the U.K. business -- Britain's third largest broadband player behind BT Group plc (NYSE: BT; London: BTA) and ntl group ltd. (Nasdaq: NTLI) -- would attract.

Reports: VCs plan PT raid
It looks like Sonaecom , which earlier this year announced its intention to offer €10.7 billion ($13.8 billion) for Portugal Telecom, is about to face a rival bid. (See Eurobites: M&A, IPO & KPN.)

The Times of London reports that a consortium of private equity firms, including Cinven Ltd. , The Blackstone Group , Permira , Providence Equity Partners , and others, are set to offer €14 billion ($18.1 billion) for the national operator.

KPN buys again
Dutch incumbent carrier KPN has bought another small service provider in the form of Demon Netherlands, a broadband service provider focused primarily on the enterprise sector.

KPN has been on a bit of a spending spree of late, picking off specialist companies to add to its broadband and WiFi service units. (See KPN Acquires Enertel, KPN Buys Dutch ISP, and KPN Buys Attingo.)

KPN is paying Demon's current owner, British carrier THUS plc (London: THUS), €69 million ($89 million) for the service provider, which has 70,000 customers and revenues in the year ended March 31 of nearly €29 million ($37.5 million).

That, point out the analysts at Lehman Brothers in a research note, "looks very expensive at €985 [$1,272] per subscriber."

— Ray Le Maistre, International News Editor, Light Reading

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