December 15, 2017 / 10:22 AM / a year ago

UPDATE 2-D.Telekom, Tele2 join forces to challenge Dutch duopoly

* Tele2 to receive 190 mln euros, 25 pct stake in T-Mobile NL

* Merged business has 2 bln euros in sales, 4.3 mln customers

* Run-rate synergies of 150 mln euros seen in 3 years

* Merged business to challenge KNP-Ziggo duopoly (Adds Tele2 CEO, analyst, context, detail on towers)

By Anna Ringstrom and Maria Sheahan

STOCKHOLM/FRANKFURT, Dec 15 (Reuters) - Deutsche Telekom will buy the Dutch business of Sweden's Tele2 and combine it with its T-Mobile Nederland to give it more muscle to challenge rivals KPN and Ziggo.

Analysts have said a merger of T-Mobile and Tele2 in the Netherlands might make sense as the two lie a distant third and fourth place in the Dutch market. Their relatively small market positions will also reduce the risk of any regulatory objections to this 'four-to-three' consolidation.

"We are confident that this deal should be approved," Tele2 CEO Allison Kirkby told a conference call.

"This is going to create proper competition to the duopoly and allow both of us to be stronger together than we were as individual stand-alone companies."

Deutsche Telekom had said last month it was open to merging T-Mobile Nederland with the local business of Tele2, or floating the Dutch mobile operator on the stock market.

Tele2 shares rose 6 percent in early European trading, following what brokerage Jefferies called "an elegant exit from a strategically difficult situation." Deutsche Telekom shares were little changed.

"I think it's completely right, the market is tough and it's good for all operators," Inge Heydorn, fund manager at Sentat Asset Management, said.

Under the deal, Tele2 will receive 190 million euros ($224 million) in cash and a 25 percent stake in the enlarged T-Mobile NL, the two companies said on Friday.

The combined business would have revenues of 2 billion euros and 4.3 million mobile post-paid subscribers and expects to generate benefits of 150 million euros within three years of closing, they said in a joint statement.

Until now T-Mobile NL has been a pure mobile play, while the merged entity would pursue a so-called fixed-to-mobile convergence strategy that allows for transmission of data, voice and video to devices at home or on the go.

The companies said they expected the deal to close in the second half of 2018 subject to regulatory clearance.

TOWERING AMBITIONS

Deutsche Telekom had put its Dutch business in a division headed by its M&A chief Thorsten Langheim, who has adopted the aggressive marketing stance of T-Mobile US that includes unlimited data plans.

"We've started our journey to disrupt the Dutch market and we will be creating a viable and strong attacker of the duopoly KPN and VodafoneZiggo," Langheim said in the statement.

KPN, the former state telecom company, has a market share of 43 percent and Ziggo, a joint venture between Vodafone and Liberty Global, has about 30 percent.

T-Mobile Nederland has since the start of 2016 captured more than half of net post-paid customer additions, lifting its market share to 21 percent and dwarfing Tele2's 5 percent.

Before the transaction is completed, T-Mobile NL will spin out its mobile tower operation, which will remain under the full control of Deutsche Telekom.

The German parent is exploring ways to realise value from its towers, which typically command a higher valuation than mobile telecoms. The towers sector has already been largely consolidated by specialist players in the United States.

The enlarged T-Mobile NL is expected to be capitalised with an intercompany loan receivable by Deutsche Telekom of around 1.1 billion euros, the two companies said.

Tele2 also said it expected to book an impairment of SEK 1.0-1.5 billion ($118-$178 million) related to its Dutch operations in the fourth quarter, under discontinued operations. ($1 = 8.4377 Swedish crowns) ($1 = 0.8488 euros) (Additional reporting by Helena Soderpalm and Olof Swahnberg in STOCKHOLM; Writing by Maria Sheahan and Douglas Busvine. Editing by Jane Merriman)

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