Dutch telecoms group Royal KPN has agreed to sell its German mobile unit E-Plus to Telefonica Deutschland for EUR5 billion (USD6.6 billion) in cash and a 17.6% stake in the combined entity post transaction. The merger of Germany’s third and fourth largest mobile network operators by subscribers will create a player with ‘an enhanced competitive position with a high quality network with ample capacity to address increasing demands for high quality (data) services and an extensive distribution network.’ The move will enable KPN to focus on its core geographies in the Netherlands and Belgium, and the firm said it will use the majority of the cash proceeds to increase its financial flexibility and intends to recommence dividend payment to shareholders for 2014. ‘The opportunity to unlock significant value in Germany by selling E-Plus is clear and compelling,’ commented Eelco Blok, CEO of KPN, adding: ‘The significant premium embedded in the sale price recognises the substantial operational synergies. The combination of E-Plus and Telefonica Deutschland will establish a mobile operator with attractive synergy and growth potential in Europe’s largest economy.’
The transaction will see KPN transfer 100% of its interest in E-Plus to Telefonica Deutschland for a consideration of EUR3.7 billion in cash and newly issued shares in Telefonica Deutschland, representing 24.9% of the share capital. Simultaneously, Spanish parent Telefonica will acquire a 7.3% interest in Telefonica Deutschland from KPN for a cash consideration of EUR1.3 billion, lifting its total stake to 65.0%. The transaction is subject to regulatory and shareholder approval, as well as other customary terms and conditions, including: a break-up fee of EUR100 million payable by Telefonica Deutschland in case the merger control authorities do not approve the deal; a reciprocal break-up fee of EUR50 million payable by Telefonica Deutschland or KPN in case their respective shareholders do not approve the transaction in their EGM; and a break-up fee of EUR50 million payable by KPN in case it revokes its recommendation for the transaction as a result of a superior offer for E-Plus in excess of EUR8.6 billion.