Telenet Buys KPN's BASE in $1.4B Deal
Belgian cable operator Telenet is to pay €1.325 billion (US$1.4 billion) for control of KPN mobile subsidiary BASE in the latest example of European consolidation spurred by the need to have both fixed and mobile operations.
The deal will create a stronger rival to incumbent Belgacom SA (Euronext: BELG) in the market for converged services and have major ramifications for Orange (NYSE: FTE)-owned Mobistar SA , Belgium's second-biggest mobile operator, whose network Telenet has been using to provide mobile services.
Majority owned by multinational cable conglomerate Liberty Global Inc. (Nasdaq: LBTY), Telenet expects to be able to save about €150 million ($161 million) each year by migrating its mobile customers from Mobistar's network to BASE , which currently runs Belgium's third-biggest mobile phone business.
The deal values BASE at about eight times its annual EBITDA and will give rise to a combined entity generating about €2.4 billion ($2.6 billion) in annual sales and €1.1 billion ($1.2 billion) in adjusted EBITDA.
Communications market leader Belgacom made about €6.1 billion ($6.6 billion) in revenues last year, while KPN Telecom NV (NYSE: KPN) reported revenues of €711 million ($764 million) from BASE.
Telenet plans to spend about €240 million ($258 million) on improving BASE's mobile network over the next few years -- assuming competition authorities allow the deal to go ahead -- on top of the €500 million ($537 million) it will spend on developing its HFC network.
The company has said it will finance the deal through €1 billion ($1.1 billion) in new debt facilities plus existing liquidity. Although additional borrowing will increase net debt to about 4.45 times annualized EBITDA from 3.7 currently, Telenet insists the bigger ratio is still within its long-term target range and financial covenants.
Telenet's share price was up 5% on Monday morning following the operator's announcement, while KPN's had risen about 2.5%.
Shares in Belgacom also received a boost from news of the likely consolidation, rising more than 2.5% in early-hours trading,
Telenet has prospered as a mobile virtual network operator in the Belgian market after authorities introduced new rules in 2012 preventing operators from tying customers to contracts of more than six months.
Having managed to lure subscribers away from mobile rivals, Telenet has grown its mobile customer base from about 258,000 in early 2012 to 895,000 at the end of 2014 and now claims a 7% share of the mobile market.
The takeover of BASE will give it another 3.26 million customers and increase its mobile market share to about 30%.
With a 37% share of Belgium's fixed-line market, Telenet will be in a strong position to upsell fixed-line services to new mobile customers following the BASE acquisition.
A similar opportunity convinced the UK's BT Group plc (NYSE: BT; London: BTA) to offer £12.5 billion ($18.65 billion) for mobile giant EE earlier this year. (See BT Locks Down £12.5B EE Takeover Deal.)
"Through the acquisition of BASE we have made a significant step to secure long-term mobile access conditions, ensuring we are well positioned to effectively compete for the future growth opportunity of mobile data," said Telenet CEO John Porter in a company statement.
Having already sold its E-Plus Service GmbH & Co. KG mobile subsidiary in Germany, Dutch incumbent KPN will have no interests outside its domestic market after the BASE sale.
By contrast, Liberty Global has been expanding its European footprint over the past few years and now controls businesses in 12 European countries.
In 2013, it acquired the UK's Virgin Media Inc. (Nasdaq: VMED) in a $24 billion move and is now looking to challenge BT's dominance in the market for superfast broadband services. (See Liberty Makes $23.3B Play for Virgin Media and Virgin Media Plots £3B Invasion of BT Turf.)
— Iain Morris, , News Editor, Light Reading