M&A Market 2019: Restructured Telecom Sector, Strong State Presence

OTP increased its presence on the High Street throughout the region in 2019 and now has 12 foreign subsidiaries.

Telecoms Market Turned Upside Down

The telecommunications sector saw a rather busy 2019, and by the end of the year, the market has significantly changed.

Already in 2018, telecom giant Vodafone had announced high-scale acquisition plans in the Central and Eastern European region. In May, Liberty Global, which owned UPC Hungary and also had affiliates in the Czech Republic, Romania and Germany, said that it would sell its operations to Vodafone.

The European Commission had been investigating the transaction for months, but in July finally cleared Vodafone’s acquisition of Liberty Global’s cable businesses for EUR 18.4 billion. With the deal, Vodafone will not just be able to offer the full suite of convergent services to all segments; it becomes Europe’s leading converged player, with 116.3 million mobile customers, 22.1 million TV customers, and a next-generation fixed network reaching a total of 122 million homes and businesses.

The transaction brings Vodafone Hungary’s share of the local mobile market to 25%, while its share of the broadband fixed-line market will stand at 24%,

and its share of the commercial TV market at around 19%, according to state news wire MTI.

News broke just as this paper was going to print that Magyar Telekom and 4iG, an IT company with close links to the Fidesz-led government, had terminated talks about the latter buying Telekom’s subsidiary T-Systems.

The parties had announced on July 9 that they had started negotiations on the potential sale. 4iG CEO Gellért Jászai said he wanted to finance the deal by involving institutional investors and issuing bonds, in addition to taking out credit. By October, the company has completed the first phase of due diligence at T-Systems Hungary in a period of three months.

The two parties intend to continue exploring cooperation opportunities with the aim of partnering in the field of services sold to the public and enterprise segments, 4iG company said in a statement when announcing the termination of negotiations.

Just to create a complete the market upheaval, Hungary’s third large telecom company has also been the subject of a transaction this year. Proving previous rumors right, the Hungarian state indirectly bought into Telenor.

At the end of October, state-owned Antenna Hungária announced it had acquired a 25% stake in Telenor Hungary and Telenor Real Estate from PPF Group. A leading telecommunications group in the region, PPF Group had acquired Telenor’s communications assets in Hungary, Bulgaria, Montenegro and Serbia in July 2018. After the recent purchase, a new holding entity has been created and will serve the purpose of a joint holding venture with PPF Group owning 75% and Antenna Hungária taking 25%.

Banking M&A led by OTP

M&A activity in banking markets in the region has been increasing in 2018-2019 since it bottomed out in 2017, a recent study released by Deloitte highlights. According to the analysis, the high deal numbers in 2015-2016 were fueled by the unfavorable economic situation back then, as less robust banks could not cope with challenges and opted for an exit.

This year there has been nine completed deals with six ongoing, and in 2018, the sector saw 16 completed deals. The main reason for the relatively low number of banking deals in the past two-to-three years was the easing pressure on banks’ profitability due to stable macroeconomic environments, lively lending activity, increasing profitability; all these postponed the need of mergers and acquisitions in the banking sector.

However, long-term efficiency improvements can potentially be achieved via acquisitions, therefore the appetite of the banks in the regions is increasing again.

The banking sector in the region is still very fragmented. In Hungary, of the 40 banks currently operating, only five have a market share larger than 5%, and 25 have less than 1%. The situation is similar across the region, which implies that there is room for further CEE mergers and acquisitions.

The most active buyer in the 15 countries in the region analyzed in Deloitte’s study was Hungary’s OTP Group with 8 transactions completed since 2015.

OTP took advantage of Société Générale S.A.’s exit from the region, as OTP acquired all the banks sold by SG, except in Poland, where Bank Millennium (owned by Banco Cormercial Portugues) acquired SG’s Euro Bank.

At the beginning of February, Société Générale announced that it would sell its Moldovan unit to OTP Bank, as the French bank continued its retreat from parts of Eastern Europe, while OTP looks to gradually increases its presence in the region.

SocGen had a 87.85% stake in Mobiasbanca Société Générale, the fourth biggest lender in Moldova with a 13% market share. The deal was sealed at the end of July.

Other OTP targets were in Albania and Bulgaria. The bank closed the acquisition of the Albanian subsidiary of Société Générale Group in March, after it had closed the acquisition of SocGen’s Bulgarian unit in January. The Albanian subsidiary contributed HUF 1.2 billion to Q2 group profit, and the Bulgarian unit added HUF 4.6 billion.

Announced in February and completed in July, the Hungarian lender also bought the Montenegrin unit of SocGen through Crnogorska komercijalna banka, the local unit of OTP, for EUR 35.6 million.

OTP said at the beginning of May that it had signed an acquisition agreement on purchasing a 99.73% shareholding of SKB Banka, the Slovenian subsidiary of Société Générale Group, and other local subsidiaries held by SKB Banka. OTP said it had completed the acquisition on September 25.

Société Générale Serbia will operate under the brand name OTP Banka Srbija, while its full merger with Vojvodjanska Banka, another Serbian unit of OTP, is planned to be completed in 2021.

By the end of 2019, OTP operates a total of 12 foreign subsidiaries.

Media Market Further Centralized

Government allies further strengthened their grip on the Hungarian media market this year.

On September 30, the pro-government Mediaworks Hungary Zrt. completed the merger of companies owned by the government-friendly Közép-európai Sajtó- és Média Alapítvány (KESMA) fund. Some 28 companies operating under the umbrella of KESMA entered into an agreement on February 21 this year to form an officially recognized company group.

Now Mediaworks, which was formerly owned by Prime Minister Viktor Orbán’s close friend, the billionaire investor Lőrinc Mészáros, is at the helm of the group.

The portfolio consists of all the country’s regional daily papers, some of its most visited news websites, political and gossip dailies, television and radio stations.

KESMA was founded in 2018, and basically redrew the media market by merging a total of 476 media companies.

State Takeovers on the Energy Market

The Hungarian energy market has also seen strong state activity in the past years, and this tendency continued in 2019 as well. State-owned MVM Zrt. has become the sole owner of the country’s national utility company NKM Nemzeti Közművek Zrt.

As the only shareholder in MVM, the Hungarian state has carried out a HUF 13.4 bln capital increase in the company in August. As a result, NKM has become a 100%-owned subsidiary of MVM. The services offered by the new energy holding created by the complete merger of NKM Group covers the entire spectrum of the energy value chain.

In another significant energy market deal, E.ON signed a framework agreement with MVM Magyar Villamos Művek Zrt. and Opus Global Nyrt. in October. On September 18, E.ON SE acquired a controlling stake in Innogy SE. Innogy is present on the Hungarian market as the majority shareholder of ELMŰ Nyrt. and ÉMÁSZ Nyrt.

On October 2, E.ON Hungária acquired the 27% stake held by EnBW in ELMŰ and ÉMÁSZ. A day later, an umbrella agreement was signed between E.ON Beteiligunger GmbH, the sole shareholder of E.ON Hungária, and MVM Magyar Villamos Művek Zrt. (a shareholder of ELMŰ Nyrt. and ÉMÁSZ Nyrt.), and Opus Global Nyrt. Under this agreement, E.ON intends to acquire the shares owned by MVM in ELMŰ and ÉMÁSZ, followed by a series of other transactional steps. The final elements of the agreement are expected to close in 2021.

Telenor is now 25% owned by the state through Antenna Hungária.