European mobile operator Orange S.A. said it will sell its 100-percent owned Danish subsidiary to Nordic operator TeliaSonera for $743 million in cash. The buy will add 605,000 mobile subscribers to TeliaSonera’s Danish subsidiary and eliminate a competitor.
TeliaSonera said the acquisition is expected to generate a total pre-tax cash flow effect of $66 million from 2006, of which $2.7 million includes capex synergies. The major part of the cost savings is related to closing one of the overlapping GSM networks.
Implementation costs are expected to be about $73 million and relate mainly to costs for transferring traffic to the retained GSM network, initial marketing and subscriber migration costs and a maximum payment of Orange’s UMTS license costs of $35 million. TeliaSonera added that it expects significant write-downs related to the transaction, mainly related to the network shutdown.
TeliaSonera said the carriers will continue to operate under separate brands until all necessary approvals of the transaction are obtained, at least until spring 2005.
Following the deal, TeliaSonera will have about 1.1 million customers in Denmark, making it the third-largest carrier.
“By combining Telia Mobile Denmark and Orange Denmark, we are creating a true and powerful contender to the two dominating players in the Danish market,” said Anders Igel, president and chief executive officer of TeliaSonera. “Combined we will have critical mass and operational scale, sufficient to become the first choice provider of mobile services in Denmark.”
The acquisition will reduce the Danish wireless market to four competitors from five. TDC Mobile is the dominant carrier with more than 2 million customers, and Sonofon has more than 1 million subscribers. Hi3G, owned by Hutchison Whampoa Ltd., owns a third-generation license in the country, but has not yet launched services.
Denmark is one of the most competitive markets in the world with four mobile virtual network operators in addition to the wireless carriers and only about 5.2 million total subscribers.
U.K.-based consultancy Ovum Ltd. said the deal was positive for France Telecom, but offered no real value to TeliaSonera in a market where margins are well below the European average. “There is no real value in acquiring a second GSM network, and TeliaSonera will have to shut one down to save costs,” said Ovum. “We expect further consolidation to come.”
