CONSOLIDATION://KPN takes out another DSL rival

KPN buys another rival ISP in the Netherlands, this time Tiscali NL. Its market share will rise by 5 pp to 44%.

Observations:

• At 44% KPN is not yet at regulatory risk, but OPTA will be alerted. KPN is quietly trying to buy a DSL monopoly.
• The price seems low, at 5.1 x EBITDA 2006 v. 8.1 for Tiscali as a whole. KPN pays EUR 255m = 21% of the total EV (which obviusly includes a takeover premium) for 13% of the total revenues and 36% of the total EBITDA. On the other hand, Tiscali has no standalone future, so KPN might have waited a little longer. And the Netherlands is among the most mature of its operations (LLU coverage 60% v. 18% in the UK and 40% in Italy).
• KPN outsmarts France Telecom (which should be strengthening its new Orange operations), Telecom Italia (which should be adding a retail operation to bbned, which would not be for sale anymore, but everything is uncertain now in Italy) and Tele2 (which should not stop adding scale, after the Versatel acquisition). Of course, the Netherlands is a small place for those big guys, but they should not allow KPN to make this kind of deals.
• Tiscali will update its Business Plan during the week of October 9. They seem committed to the UK and Italy. Consolidation is continuing.