Tie-up will increase Tele2's focus on Sweden and add to the pressure on Telia, creating a strong number two player in fixed and mobile markets.

Iain Morris, International Editor

January 10, 2018

5 Min Read
Sweden's Tele2 to Swallow Com Hem in $3.3B Deal

Swedish mobile service provider Tele2 will acquire cable operator Com Hem in a deal valued at about US$3.3 billion so that it can offer a full range of fixed and mobile services to its customers and provide a serious challenge to market leader Telia.

The takeover, which represents the first big European telecom merger of the year, would unite one of the country's biggest mobile networks with a major broadband and TV services company, and enable Tele2 to challenge Telia in the market for bundles of fixed, TV and mobile services.

The deal appears to be the brainchild of investment group Kinnevik, which is already the largest shareholder in each company, with 48% of voting rights in Tele2 and about a fifth of rights in Com Hem. If the deal is completed, Kinnevik would hold 27.3% of shares and 41.9% of voting rights in the new Tele2.

"Kinnevik invested in Com Hem last year and it was expected this would lead to an ultimate acquisition of Com Hem," says Bengt Nordström, the CEO of the Northstream consulting and market research business. "Now they have established themselves as a clear number two in the Swedish market [behind Telia] with a fully convergent offering."

Tele2 AB (Nasdaq: TLTO) has indicated that it will pay Com Hem AB in a mixture of shares and cash, offering the cable operator's shareholders a stake of 26.9% in the combined company as well as 6.6 billion Swedish kronor ($810 million) in cash. The overall deal has been valued at about $3.3 billion, but that figure will vary depending on share price fluctuations.

The offer, which requires approval from the shareholders of both companies as well as regulatory authorities, values Com Hem at about SEK146 ($17.83) per share, 11.8% more than Com Hem's closing share price of SEK130.6 ($16) in Stockholm on January 9.

Shares in Com Hem were up nearly 8% during morning trading in Sweden on news of the takeover, at about SEK140.7. But Tele2's investors appear nervous about the deal -- its share price dipped 4.8% to SEK100.

Com Hem boss Anders Nilsson is to become CEO of the new-look player, while Tele2 CEO Allison Kirkby appears to be leaving the company.

Tele2 served about 3.87 million mobile customers at the end of September but just 53,000 fixed broadband subscribers. Com Hem, meanwhile, had an overall customer base of 972,000 subscribers, with 736,000 of that total using broadband services and 651,000 taking TV services. At the end of September 2017, market leader Telia had almost 6.2 million mobile customers, about 1.3 million broadband customers and 779,000 TV customers.

Sweden has about 4.2 million households in total, according to data from the country's statistics agency, and about 10.1 million people.

"Merging is the best possible next step for both companies as it will enable us to meet the demands of tomorrow and unleash the power for the best possible digital quality of life in Sweden," said Nilsson in a statement. "The transaction will create significant benefits to Swedish individuals, households, businesses and to the shareholders of Tele2 and Com Hem."

Northstream's Nordström described the deal as a "logical" move given the maturity of the Swedish market. "In such a market the strength of your brand and distribution is very important and of course size matters," he says. "The bigger the marketing budget you have the more you can spend on your brand and the more extensive your distribution can be. That is why a deal like this makes sense."

While Tele2 maintains operations in several other eastern European and Nordic markets, it has sold a number of businesses in recent years, exiting the Austrian market as recently as last year through a sale of its local subsidiary to local rival Hutchison Drei.

Last month it also agreed to combine its Dutch business with that of Germany's Deutsche Telekom in a move similarly aimed at creating a much stronger fixed and mobile operator. That deal left Tele2 with a share of only 25% in the combined company. (See T-Mobile Netherlands to Merge With Tele2.)

For all the latest news from the wireless networking and services sector, check out our dedicated mobile content channel here on Light Reading.

The merger with Com Hem will make it even more heavily dependent on Sweden for sales. The two companies would together have made about SEK31.8 billion ($3.4 billion) in revenues and SEK9.2 billion ($1.1 billion) in EBITDA for the 12 months ending in September 2017, with Sweden accounting for 72% of sales and 78% of EBITDA.

Tele2 expects to generate overall "synergies" in opex, capex and revenues of about SEK900 million ($110 million) within five years of completing the deal. It also expects the transaction to be "free cash flow per share accretive" from the first year after completion.

Most of the synergies are expected to come on the cost side from savings in areas including IT and infrastructure, customer care, sales and marketing, and management and administration. Tele2 also expects to realize capex savings by combining its IT systems and networks with those of Com Hem.

It reckons the full cost of integrating its business with Com Hem's will come to about SEK600 million ($73 million), and says it will incur the bulk of these costs during the first three years following completion of the merger.

Tele2 had already beefed up its Swedish business with the SEK2.9 billion ($350 million) takeover in 2016 of TDC Sweden, the local subsidiary of Danish telco TDC. That particular move gave Tele2 a much stronger presence in the country's B2B market, where TDC had specialized.

The tie-up with Com Hem, by contrast, is clearly focused on the consumer market. It follows a smaller consumer-oriented takeover by Com Hem in June 2016, when the cable company acquired a local pay-TV company called Boxer in a deal worth about $160 million. (See Sweden's Com Hem Pays $160M for Boxer TV.)

The deal will add to the pressure on market leader Telia, which is also providing bundles of fixed and mobile services to Swedish customers. Like Tele2, Telia has been exiting other markets and increasing its focus on Swedish and Nordic operations. (See Telia to Slash 850 Jobs on Earnings Disappointment.)

— Iain Morris, News Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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