Breakup Talk Swirls Around Tele2

Pan-European service provider Tele2 AB (Nasdaq: TLTO) is the focus of Europe's telecom M&A attention today following its 2005 results and analyst buzz about a potential breakup of the company, which has more than 30 million customers in 23 countries.

The Swedish firm isn't the only operator under scrutiny, as talk of a bid for eir resurfaces, and mobile operator 3 Italia still has an IPO in sight.

Tele2 To Split?
Having just reported 2005 results that dipped below expectations, Tele2 -- currently transforming itself from a fixed voice reseller into a broadband-and-mobile operator -- is exciting financial analysts who believe a breakup of the geographically diverse company is on the cards. (See Tele2 Reports 2005.)

The service provider, which fuelled its transformation in 2005 with €1.6 billion ($1.9 billion) of acquisitions and some business unit sales, is sticking with its growth message, saying 2006 will see higher revenues and costs before profits pick up again in 2007. (See Tele2 Sells UK Unit, Tele2 Completes Comunitel Buy, Tele2 Quits Finland, Adds Russia, and Tele2 Sets M&A Ball Rolling.)

But analysts believe Tele2 is reviewing its ownership, and that parts or all of the company could be sold. The team at Lehman Brothers believes any confirmation that the company is considering its "strategic options" would boost its share price, and that any "extensive breakup" of the operator could ramp its valuation as high as 150 Swedish Kronor per share. Based on the fourth quarter results, however, the Lehman team currently values Tele2's stock at SEK85.

Tele2 declines to comment on any breakup suggestions, and won't say whether it has received any bids. Its share price inched up by one percent this morning on the Swedish stock exchange to SEK89, giving the carrier a market capitalization of SEK35.33 billion ($4.5 billion).

Late on Friday Tele2's CEO Lars-Johan Jarnheimer told investors and analysts the company planned to continue its broadband expansion, which has seen it sign up 1.2 million customers in 13 countries, including Belgium, Italy and Spain. The CEO noted, however, that its entry into the highly competitive French DSL market had been delayed due to "the unforseen technical complexity of implementation," with market entry now expected in the second quarter of this year at the earliest. (See Tele2 Offers DSL in Spain and Tele2 Speeds Up in Belgium.)

3 Italia Still Looks to List
Having just postponed its anticipated IPO, mobile operator 3 Italia has told newspaper La Repubblica that its stock market listing should take place before the end of 2006, with the company's managing director telling the publication that the service provider is already behaving as if it had joined the stock market. (See Hutchison Delays 3 Italia IPO.)

The 3G operator was also in the news last week after its parent company announced a tie-up with Skype Ltd. that could see the VOIP specialist's services offered as part of the mobile carrier's services bundles. (See 3GSM: Skype Gets Into 3G .)

Eircom Target Talk Resurfaces
Speculation that Irish incumbent Eircom is set to receive a takeover bid resurfaced over the weekend in British newspaper The Sunday Times, which reported that a €2.30 per share offer is anticipated, most likely from private equity firm Babcock & Brown , which has already built a 12.5 percent stake in the operator.

The Irish carrier, which held takeover talks with Swisscom AG (NYSE: SCM) in 2005, isn't commenting, but it's clear investors expect something, as even below-par third quarter results failed to halt an uptick in the operator's share price last week. (See Eircom Reports Q3 and Swisscom Ends Eircom Talks.)

The carrier's stock ended last Friday at €2.10, and has risen another 5 cents, more than 2 percent, today to €2.15, valuing it at €2.3 billion ($2.75 billion).

Private equity interest in Eircom first came to light early this year, with the unusually high margins the carrier still commands cited as one of its main attractions. The latest financials, though, suggest those margins may be under increasing pressure, with analysts at Lehman Brothers noting that the incumbent will face more pressure in the coming year as cable operators expand their service offerings. (See Merger Mania Continues in Europe and Eurobites: A Private Affair.)

— Ray Le Maistre, International News Editor, Light Reading

digits 12/5/2012 | 4:05:32 AM
re: Breakup Talk Swirls Around Tele2 Tele2 has built up a neat portfolio, especially of wireless operations in former Soviet states, and is now investing in local loop unbundling in some of Europe's most competitive broadband markets. This doesn't look like the right time to be pulling it apart, if a bid is indeed in the works.
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