TELEFONICA, the company behind O2, yesterday agreed to buy a German mobile phone network for €8.1bn (£6.96bn) in a deal that could herald a new wave of industry consolidation.
The Spanish communications giant will take control of E-Plus from Dutch group KPN for €5bn in cash and a further €3.1bn in shares.
Although the deal still faced serious regulatory challenges, analysts say it shows how Europe’s mobile networks are being forced to respond to tough competition and declining revenue from traditional services such as calls.
Telefonica already operates Germany’s third biggest network under the O2 brand and will seek to save around €5bn by combining it with E-Plus, the smallest player in a crowded marketplace.
The new entity will then leapfrog Deutsche Telecom and Vodafone to become the market leader with around a third of all German users. But analyst Ulrich Rather at Jefferies warned that “such a deal would face significant hurdles in principle, even before discussing potential concessions”.
A forthcoming EU ban on cross-border mobile phone roaming charges is expected to accelerate the rush to consolidate, rewarding large multinationals that can afford to operate their own networks across large swathes of the continent.
Mexican telecoms tycoon Carlos Slim stands to benefit from the deal due to his interest in KPN.
UBS advised Telefonica Deutschland on its proposed merger with KPN subsidiary E-Plus. The bank’s team was lead by Thomas Koehrer, who joined in 2005 from Lehman Brothers. He took up his current role as managing director of technology, media and telecoms (TMT) for the EMEA region in March 2012 and since then has worked on the €1.45bn flotation of Telefonica Deutschland, the acquisition of Cable and Wireless Worldwide by Vodafone, and the UK network joint-venture between Vodafone and Telefonica.
Koehrer was assisted by Alexander Gehrt, the bank’s head of M&A for Germany and Austria. In his early years at the bank he advised Vodafone on its hostile takeover of Mannesmann in 2010, which helped shape the existing German telecoms industry. Bank of American Merrill Lynch also provided advice to E-Plus.
Citigroup, Morgan Stanley and HSBC provided assistance to Telefonica.
KPN, the Dutch parent company of E-Plus, turned to Goldman Sachs for advice, with the bank’s global head of telecoms Simon Holden working on the deal. They were joined by a team from JP Morgan.