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Telenor Sells Regional Units to PPF Group for EUR 2.8 bln

Norway’s telecommunication giant Telenor Group has agreed to sell four units in the Central and Eastern European region to Czech investor PPF Group for EUR 2.8 billion, the companies announced in a statement.

Alexandra Reich.

“I want to underline that this transaction will have no impact for our customers and local partners, and going forward the business will run as usual,” Telenor Hungary chief executive Alexandra Reich said.

The sale includes Telenor’s wholly-owned mobile operations in Hungary, Bulgaria, Montenegro and Serbia, as well as technology service provider Telenor Common Operation.

Telenor’s Hungarian subsidiary has been on a downward path in terms of subscribers over the past eight years, the firm’s annual reports show. Prepaid SIM cards have been steeply declining since 2008, while the number of contract clients has increased only slightly. Telenor only reveals 2015 data about its active subscribers, whose number was 3.4 million, according to data on its website, while the number of its employees was slightly above 1,000.

PPF Group is the largest private investment group in the Central and Eastern European region, with a portfolio that includes banking, telecommunications, biotechnology, insurance, real estate, and agriculture. It is active in Europe, Russia, the USA and across Asia with assets totaling EUR 35 bln, as of June 30, 2017. It is aiming to boost its telecommunications portfolio in the CEE region, and the newly acquired Telenor operations “are key to achieve this”, the company said in a statement.

PPF Group bought O2 Czech Republic from Telefonica in 2013 and Nova Broadcasting Group in Bulgaria earlier in 2018.

Jørgen C. Arentz Rostrup.

PPF Expanding

“With this purchase, PPF Group is expanding its telecommunications portfolio to four more countries, and fulfilling our long-held goal to become a mid-sized European operator and to use our experience to strengthen our market position,” said Ladislav Bartoníček, PPF Group’s shareholder responsible for telecommunications assets within PPF.

The Norwegian telco’s operations in the region contributed approximately 9% of Telenor Group’s revenues and 8% of earnings before interest, taxes, depreciation and amortization in 2017; collectively, the CEE businesses have more than nine million customers and around 3,500 employees.

“With the sale of our CEE assets, we take an important step in simplifying and focusing Telenor’s portfolio on the regions where we see the strongest potential for value creation,” Sigve Brekke, chief executive officer of Telenor Group said in a statement.
Following the transaction, Telenor is set to concentrate on its integrated mobile and fixed operations in Scandinavia, and on mobile in Asia.

“We are currently focusing on developing our existing assets and driving digital transformation. In the coming years, we believe there will be value accretive opportunities within our core business areas and geographies,’’ Jørgen C. Arentz Rostrup, chief financial officer of the group said.

Telenor’s board of directors will propose at the firm’s upcoming general meeting on May 2 to pay out a special dividend of 4.40 Norwegian krone, or EUR 0.46 per share, once the transaction is successfully closed. This would result in an altogether NOK 19 bln payout to shareholders in 2018, including the originally proposed dividend.

Sigve Brekke.

Deferred Purchase Price

PPF Group and Telenor have agreed on a deferred purchase price, where EUR 400 million will be paid in four instalments over four years.

The transaction needs regulatory approval. On when completion should be expected, the two companies’ expectations differ: Telenor foresees the closing within the third quarter this year, while PPF believes it may happen already in June. The Norwegian firm noted, however, that as of the first quarter 2018, the CEE operations will be treated as an asset held for sale and as discontinued operations in Telenor Group’s financial reporting.

Telenor has had mobile operations in the CEE region for 25 years. It first entered the Hungarian market in 1994 through the acquisition of Pannon. It later expanded its presence in the region through the launch of mobile services in Montenegro in 1996, and the acquisition of Mobi 063 in Serbia in 2006. Telenor acquired Globul in Bulgaria in 2013.

Reich reassured the Hungarian clients in a video posted on Facebook they would see no changes whatsoever because of the transaction.
“Give us the chance to show you that you can keep on trusting us and stay with us,” Reich said.

Despite requests from the Budapest Business Journal for more detailed information, neither Telenor, nor PPF Group would reveal further details of the transactions, or the future of the assets, beyond their general statements. Hungarian IT and telco association IVSZ also declined to comment on the matter.

Earnings and Rumors

Telenor Hungary’s fourth-quarter revenues rose 7.2% year-on-year to HUF 40.2 billion, an earnings report released by parent company on January 31 showed. EBITDA rose 9.1% to HUF 11 bln.

Turnover had been lifted by higher average revenue per user (ARPU) among retail post-paid subscribers and migration from pre-paid to post-paid contracts. Subscriber numbers rose to 43,000 in the fourth quarter alone, the earnings report showed.

News of the possible sale first broke just prior to that, on January 26, when Telenor announced it had received “inbound and unsolicited interest” for its mobile operations in the region.

After the release of its fourth-quarter results, Telenor Group also revealed that it would be laying off as many as 6,000 employees in the next three years due to automation of services and in order to eliminate overlaps, according to online news portal index.hu. The company had already cut some 2,600 jobs last year, index.hu noted.
Government spokespersons had recently started talking again about the possibility of creating a national telecom operator, leading some to believe it might be interested in Telenor. Billionaire investor Lőrinc Mészáros, whose wealth and business interests have mushroomed spectacularly since Fidesz took power in 2010 – Mészáros is a close ally of the Prime Minister Viktor Orbán and mayor of his home village of Felcsút – also expressed an interest, through one of his companies.

On February 1, Gellért Jászai, chairman-CEO of Konzum, said the IT and telecom sector is one of the main focuses of the acquisition and development strategy of the Konzum group, and Telenor’s activities fit in well with this strategy, in response to queries from business portal portfolio.hu. Konzum is directly and indirectly majority owned by investor Lőrinc Mészáros.