Tele2 acquires Com Hem: target 'untapped customer demand'

Merger announcement & presentation:

• Acquires Com Hem
• HH coverage 60%, 1100 employees
• Results TTM: rev SEK 7.1b, adj EBITDA SEK 2.9b, OFC SEK 1.8b)
• Merger, Tele2 absorbs Com Hem.
• Cash (per share: SEK 37.02 SEK) + stock (per share: 1.0374 B-shares) = SEK 6.6b + 26.9% of Enlarged Tele2 = 146 SEK/share (11.8% premium over 180109 closing price, 15.9% premium over -30 trading days)
• To issue 184.8m new B-shares, total 687.6m shares (o/w 22.8m A, 664.8m B); Kinnevik (to own 27.3% & 41.9% of votes) supports (lock-up 6 mo after completion).
• To close 18H2 (latest 190331).
• Refers to EC, prepared to effect pro-competitive measures if required to complete the merger.
• Total synergies
• 50/50 from costs (mostly opex) & rev (complementary, cross-selling)
• Total 900m SEK/annum in yr 5 (65% in yr 3, 80% in yr 4)
• Integration costs SEK 600m
• Rentention bonus 12-24 mo base salary for mgt & key employees
• Accreditive to FCF from yr 1.
• Management
• Anders Nilsson (Com Hem) to replace Allison Kirkby as CEO.
• New Board to be chaired by Georgi Ganev (Tele2), >= 2 Com Hem members (incl Andrew Barron).
• Targets
• Increase shareholder remuneration.
• Target leverage remains 2.0-2.5 (at closing net debt/EBITDA TTM 2.8).
• Rationale
• Untapped customer demand
• Value accreditive
• Complementary, complete proposition to improve customer satisfaction & loyalty
• Greater scale & diversification
• Unlock synergies
• Revenue & CF diversification
• 2017
• Dividend 2017E: 4 SEK/share for Tele2, 6 SEK/share for Com Hem.
• Combined results TTM: rev SEK 31.8b, adj EBITDA SEK 9.2b, OCF SEK 6.1b.
• Sweden 72% of revenues & 78% of EBITDA (TTM).
• Market shares in Sweden pro forma: 28% mobile, 22% FBB, 39% DTV.