Deutsche Telekom AG (DTE) agreed to acquire full ownership of its Czech unit, betting on a recovery in eastern European telecommunications, a market that contributes almost a quarter of the German carrier’s revenue.
The owner of the T-Mobile brand will pay 828 million euros ($1.1 billion) for the remaining 39.2 percent stake in the Czech unit from Falcon Group led by Mid Europa Partners LLP, according to a statement from the private-equity firm. The transaction won’t require regulatory approval, Bonn-based Deutsche Telekom said in a separate release.
The buyout is part of Chief Executive Officer Timotheus Hoettges’s strategy to broaden Deutsche Telekom’s reach in eastern Europe. With assets stretching from the U.K. to the Balkans, the carrier agreed to acquire Warsaw-based landline provider GTS Central Europe in November and has offered to purchase an additional 10 percent stake in Hellenic Telecommunications Organization SA (HTO) from the Greek government, people familiar with the talks said last month.
While revenues have been declining in the Czech Republic, the country’s mobile data market “has good potential as it is still less saturated than in western Europe,” Tomas Mencik, a Prague-based analyst at Cyrrus AS, said by phone.
The purchase gives T-Mobile Czech Republic an enterprise value equivalent to about five times its earnings before interest, taxes, depreciation and amortization, according to Deutsche Telekom spokesman Andreas Leigers, who cited projections for the unit’s fourth-quarter earnings. The division has almost no net debt, he said.
Deutsche Telekom shares declined 0.7 percent to 11.68 euros at 2:18 p.m. in Frankfurt, giving the company a market value of 52 billion euros. They dropped 5.4 percent this year through Feb. 7.
Claudia Nemat, who heads the company’s European operations, is scheduled to host a press event at the Macedonian capital of Skopje on Feb. 13 to present the company’s progress in developing an integrated network in the region.
“The purchase of the remaining shares is a logical step to optimize our portfolio and helps our development into the leading pan-European telecommunications provider,” Nemat said in the statement.
The carrier has offered mobile services in Germany’s eastern neighbor since 1996, according to its website. The Czech company had 5.7 million wireless customers and 119,000 landline connections at the end of the third quarter, and revenue fell 16 percent to 229 million euros during the period.
Falcon Group is 75 percent owned by Mid Europa. The T-Mobile stake was part of a 1.2 billion-euro leveraged buyout of Czech phone company Radiokomunikace AS by Lehman Brothers Holdings Inc. and Mid Europa in 2006. It was the largest such deal in the Czech Republic at the time.
The transaction is expected to be completed by the end of February, according to Mid Europa.
“Having full control gives them more flexibility in managing the company and creating competitive offers,” said Konrad Ksiezopolski, an analyst at Espirito Santo Investment Bank. Deutsche Telekom may also consider buying out minority shareholders in Hungary and Slovakia, he said.
Leigers said Deutsche Telekom doesn’t have concrete plans for more buyouts. The German company is interested in purchasing a majority stake in Telekom Slovenije, which the Slovenian government plans to sell by the end of the year, Handelsblatt reported last week.
While Deutsche Telekom is investing more in eastern Europe, Telefonica SA (TEF) has reduced its exposure. The Spanish carrier last month completed a 2.5 billion-euro sale of its Czech business to PPF Group NV.
Hoettges, who became Deutsche Telekom’s CEO on Jan. 1, is renewing predecessor Rene Obermann’s push into eastern Europe after the company’s U.S. business returned to growth (TMUS:US) following its merger with MetroPCS Communications Inc. Excluding the German home market, eastern Europe accounted for 22 percent of Deutsche Telekom’s net revenue in the first nine months of 2013. The company is scheduled to release fourth-quarter earnings March 6.
The carrier plans to eliminate thousands of jobs at its T-Systems corporate-client unit as it trims outsourcing services with low profitability and refocuses on growth areas such as connected cars and cloud computing.
Credit Suisse Group AG advised Deutsche Telekom, with Clifford Chance LLP acting as legal adviser.
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