Swedish alternative telco Tele2 has launched a bold SEK4.4 billion bid for Nordic rival, broadband internet company Song Networks, trumping an earlier SEK4.1 million offer from TDC of Denmark. The Danish incumbent made its move on Song on 14 September, following which the board of the targeted company declared its unanimous support for the offer and recommended that its shareholders follow suit. TDC had hoped that the successful acquisition of Song’s networks in Denmark, Sweden, Norway and Finland would allow it to strengthen its presence in the Nordic region – and Denmark’s business market in particular – as Song Networks has around 14,300 corporate customers across its businesses. However, Tele2 has jeopardised this plan as the battle for a share of the growing market for broadband services intensifies. Tele2, whose offer of SEK75 per share is better than the SEK70 being put forward by TDC, has already acquired 5.3 million Song shares, representing 10.1% of the votes and 9.5% of the company’s equity. It believes that the combination of the two companies would deliver cost synergies worth in excess of SEK300 million per annum, which it argues are significantly better than those afforded by any tie-up with TDC.
TDC is keen to expand internationally, but Tele2’s counter bid for a strategically important acquisition leaves it with a dilemma: to step aside or raise its bid. The Danish company’s plan for Song focuses on the advantages afforded by maximising technological integration between the two firms, meeting demand for cross-border communications services and solidifying its client base in the region. However, analysts are predicting that the chances of TDC presenting an improved offer are little better than 50:50, suggesting that Song could now attract fresh interest from the likes of Telenor of Norway. If TDC does up its bid, Tele2 could still walk away with a nice profit on the 10% stake in owns in the operator.
Tele2’s bid marks a significant divergence for the pan-regional alternative operator which has hitherto concentrated its efforts on virtual network operations rather than on infrastructure. Song possesses a solid fibre-optic network and is strong in the IP voice and data segment for business users. The purchase would redress a weakness for Tele2 in Sweden and make it a bigger rival to dominant operator TeliaSonera. Tele2 is Sweden’s leading alternative fixed line operator, offering fixed voice services through its Optimal Telecom unit. Its Swedish network infrastructure covers Stockholm, Gothenburg and Malmo, and it has an agreement with the National Rail Administration to use its 2,500km fibre-optic network. At the end of December 2002 the company reported 1.14 million voice telephony subscribers, up from 852,000 in December 1999; it no longer divulges a country split of the number of fixed voice users, but in March 2004 reported 2.875 million subscriptions across Norway, Finland, Denmark and Sweden. Since it was formed in 1993 Tele2 has grown to become a leading player in the region, offering fixed line and mobile telephony, data network and internet services under the brands Tele2, Tango and Comviq to 22.3 million people in 23 countries by the end of 2003. It owns and operates systems integrator Datametrix and two billing solutions companies, Transac and 3C Communications, as well as C3, which co-brands pre-paid calling cards. Cable TV services are provided through its Kabelvision unit and it is a co-owner of internet portal Everyday.COM with strategic partner MTG.