Industry Trend Analysis - M&A Picking Up In Europe - MAR 2018

BMI View: Operators in Europe are looking to consolidate their positions, either by becoming fully converged players, or by exiting non-core markets. While we do not expect any major regulatory issues with three deals announced in December 2017, it still remains a risk in the region.

2017 ended with a flurry of deals in the Netherlands, Ireland and Austria, involving major telecoms operators Deutsche Telekom, Tele2, Iliad and Liberty Global ( see table). The common theme between the three deals is a need for convergence, a trend we had first highlighted back in 2015 (see ' Consolidation And Convergence Core M&A Drivers ' , February 19 2015). Operators are also undertaking "rational diversification" strategies, as they either look to exit markets where they cannot make an impact, or gain the necessary scale to be a relevant player ( see ' Key Themes For Telecoms In 2018 ' , December 13 2017). We do not foresee any major regulatory issues with any of the current crop of deals.

December 2017 M&A
Country Companies Deal
Source: BMI
  • T-Mobile

  • Tele2

The two companies are combining their operations. T-Mobile will hold a 75% stake, with Tele2 receiving a EUR190mn payment.
  • Iliad

  • NJJ

  • eir

Iliad and NJJ have combined 49/51 to acquire a 64.5% stake in eir, for EUR650mn. Anchorage Capital and Davidson Kempner, the existing shareholders, will retain the rest.
  • T-Mobile

  • UPC

T-Mobile has acquired UPC Austria for EUR1.9bn.

In the Netherlands, the deal is geared towards offering customers another converged alternative. Incumbent KPN has led the way, while the deal between Vodafone and Ziggo, owned by Liberty Global, put single-service player like T-Mobile and Tele2 on the back foot. T-Mobile acquired some of Vodafone's fixed network as part of the Ziggo deal, while Tele2 had some B2B infrastructure, and the combination of the two will give the company far greater scale to compete with the current duopoly. Even though it retains a 25% stake in the merged company, Tele2 is continuing to exit some of its non-core assets, to focus on markets in Northern Europe.

In Ireland, the deal involved Iliad and NJJ, both owned by Xavier Niel (who had used NJJ to acquire Salt in Switzerland). It means that incumbent eir will have a telecoms-focused owner for the first time in several years, as it also looks to make that strong convergence push, and impact the mobile market where it stands last in terms of share. Iliad, which should be launching services in Italy in early-2018, is looking to diversify away from France, where growth is slowing down for the disruptor.

In Austria, Liberty Global is looking to exit a market where it has made little impact, being a stand-alone cable player with a limited footprint. T-Mobile, the third mobile player (out of three) is looking to add convergence capabilities to its offerings, in order to compete with incumbent Telekom Austria, which has been moving that way, and challenger Hutchison, the result of an earlier merger. Liberty Global might be looking for a larger deal with Vodafone, as it also looks to exit Switzerland, but the key markets for that deal will continue to be the UK and Germany.

In terms of regulation, we expect the three deals to be approved. The Irish deal is the most straightforward, as it only involves a change of owner, without any other impact on the structure of the market. In Austria the deal is vertical, which means it will not reduce the number of competitors in either the fixed or mobile markets. The Dutch deal does reduce competition, but a combined T-Mobile/Tele2 will still be smaller than either KPN or Vodafone/Ziggo, making it difficult for any regulatory authority to block the deal on competition issues.