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Roundup: Lithuania's deal of year: Teo acquires Omnitel

Xinhua, October 7, 2015 Adjust font size:

Lithuania's integrated telecommunications, IT and TV services provider Teo announced on Tuesday acquiring the mobile operator Omnitel in deal worth 220 million euros (247 million U.S. dollars).

The deal marks a reallocation of funds in the same group, since 89 percent of Teo's shares and 100 percent of Omnitel's capital is being controlled by TeliaSonera, a Swedish telecommunication company.

As for Lithuania, the deal marks the combined forces of the biggest players of the country's telecommunication market.

"Global trends led to the decision to acquire Omnitel, companies have been merging, expanding, and that opens new opportunities," Kestutis Sliuzas, Teo's chief executive, said in a press conference following the announcement.

According to Sliuzas, the deal will allow rolling-out new products and offer new converged IT solutions for the clients as well as increase effectiveness of the new entity.

Teo calculates the combination is estimated to generate annual synergies of around 10 million euros when implemented.

Analysts say the deal was just a matter of time, since both companies have been cooperating closely in recent months.

Europe's deeply fragmented telecommunication industry has been facing one of the biggest waves of consolidation in recent decades.

The decision to acquire the country's second largest mobile operator by revenue was made without applying to competition watchdogs.

"In our view, this deal does not require clearance from the Competition Council in relation to concentration in the market. It's a concentration of specific products but not a change in competitive environment," Robert Andersson, Teo's chairman of the board, was quoted as saying by BNS news agency at the news conference.

Meanwhile, the Competition Council has told business news website vz. lt it's still to be decided whether the deal needs an approval from the competition watchdog.

In the second quarter, Omnitel's revenues amounted to 30 percent of the country's mobile connection market.

DEAL OF THE YEAR

Teo is to acquire Omnitel for 220 million euros on a cash and debt free basis. The deal is said to become the largest in Lithuania this year.

According to the announcement from Teo, based on Omnitel's full-year 2014 results, the purchase price corresponds to an EV/EBITDA multiple of 7.8.

The price, albeit not low, looks "fairly valued", Andrej Rodionov, analyst from Swedbank at Lithuania, told business newspaper Verslo Zinios, noting the price is very similar to 7-8 EBITDA profits paid for the companies in Nordic telecommunication sector.

Teo announced it will finance the purchase by borrowing 148 million euros from banks.

That made investors worrying whether the company will be able to continue its generous dividend policy. In recent years, the company's dividend payout ratio amounted to 96-98 percent of the annual net profit, and the dividend yield averaged to 6-9 percent.

"In the short-term, it's bad news for minority shareholders, meaning dividends won't be paid or it will be significantly lowered," Vytautas Plunksnis, the chairman of the board of Investors' association, told news website 15min.lt. Endit