Deutsche Telekom has brought its negotiations with the Greek government concerning an investment in the Greek telecommunications company OTE to a successful conclusion.
The Chairman of Deutsche Telekom's Board of Management René Obermann said, "We look forward to working together as partners, with OTE and its employees benefiting as much as Deutsche Telekom. With its highly motivated employees, OTE has built up a strong position in its Greek home market, as well as in Southern and Southeastern Europe in recent years and will therefore be an important partner in the Deutsche Telekom Group."
As a result of the talks, a shareholders' agreement has been signed between the Greek government and Deutsche Telekom. Pursuant to this Deutsche Telekom will in agreement with the Greek government assume management control of OTE and fully consolidate the company. The Greek Inter-Ministerial Privatization Committee and the Supervisory Board of Deutsche Telekom AG have given the agreement their approval. The agreement is subject to the necessary regulatory approvals and the agreement of the Greek parliament.
Stake of 25 percent plus 1 vote Deutsche Telekom's investment in OTE is structured as follows:
Deutsche Telekom has consummated the agreement concluded with the Marfin Investment Group (MIG) in mid-March 2008 on the acquisition of just under 20 percent of OTE and acquired the shares for EUR 26 per share with a total purchase price of around EUR 2.55 billion.
Under the terms of the agreement with the Greek government, Deutsche Telekom will increase this stake to 25 percent plus one vote. To this end, 3 percent of the shares in OTE will be purchased from the Greek government for EUR 29 per share, which equates to a total amount of approximately EUR 0.43 billion. Deutsche Telekom will round its stake off by buying an additional 2 percent of OTE on the market. Based on OTE's current share price, this brings the total purchase price for the stake of 25 percent plus one vote to around EUR 3.2 billion.
Together, the two parties to the shareholders' agreement will hold a majority of 50 percent plus two votes in OTE after completion of all stages of the transaction.
Put-options and pre-emptive rights for additional shares In addition to the current changes in ownership of OTE, the two partners have also agreed put-options and pre-emptive rights for additional OTE shares in several stages and over varying periods.
From the time of the acquisition of the aforementioned 3-percent stake in OTE by Deutsche Telekom, the Greek government has a put option for a further 5 percent of the shares in OTE. This option is valid for 12 months and can be exercised in October 2008 at the earliest. A price of EUR 27.50 per share has been agreed for this option equating to a total amount of around EUR 0.67 billion.
The Greek government also holds a second put option for a further 10-percent stake in OTE until 2011. In this case, the price per OTE share shall be based on the weighted market price of the share at the time the option is exercised plus a premium of 20 percent initially that will later fall to 15 percent.
In addition, the Greek government has granted Deutsche Telekom a general pre-emptive right over its shares in OTE.
Balance sheet ratios remain sound Assuming OTE is fully consolidated in the second half of 2008 and that Deutsche Telekom holds a stake of 25 percent by the end of 2008, the transaction will already have a positive impact on the Group's results (before the one-time purchase price allocation) and free cash flow in this financial year. The ratio of net debt to adjusted EBITDA of the Group in its new constellation will increase to around 2.2 in 2008 and fall again the following year. The ratio for 2008 reflects the fact that OTE's net debt will be included in the balance sheet on a full-year’s basis, whereas EBITDA will only be included for the second half of 2008, making the ratio higher than if OTE had been consolidated for a full year. Overall, however, even based on this calculation, the ratio of net debt to adjusted EBITDA will remain at the lower end of Deutsche Telekom's target range of 2 to 3.
Considerable growth potential OTE generated revenue of EUR 6.3 billion in the 2007 financial year, an increase of 7.3 percent over the previous year. Adjusted EBITDA increased 3.4 percent to EUR 2.2 billion. Net profit amounted to EUR 0.66 billion, up 15.3 percent on the prior year. The group is the market leader in fixed and mobile communications in Greece. In addition, OTE has well-positioned subsidiaries in Romania (fixed and mobile), Bulgaria (mobile), Macedonia (mobile) and Albania (mobile) and has a 20‑percent stake in the market leader for fixed network and mobile communications in Serbia.
At the end of 2007 and together with its fully consolidated companies, OTE operated over 9 million fixed network lines and served 1.2 million broadband customers and 15.5 mobile customers. Overall, OTE has access to a total population of around 56 million in the countries where it operates and has considerable growth potential both in the fixed network and in mobile communications. This is a result of expected annual growth rates of more than 4 percent in the gross national products in OTE’s core geographic markets. In addition, there is still considerable potential for growth in mobile communications in various countries in light of increasing subscriber numbers and the relatively low level of mobile data business. The penetration rates of broadband lines in the Greek and Romanian fixed networks are still very low; in Greece for example only around 7 percent.
Presence in Southeastern Europe strengthened OTE therefore fits almost perfectly into the Deutsche Telekom Group, both in terms of its growth potential and its regional presence. The investment in OTE considerably expands and strengthens Deutsche Telekom's already very strong presence in Central, Eastern and Southeastern Europe. Once the transaction has been completed, the Group will be represented in all Southeastern European countries with the exception of Slovenia and Kosovo.
Deutsche Telekom's current national companies in Eastern and Southeastern Europe have developed very well overall in recent years and become more and more important within the Group. The national companies in Hungary, Slovakia, Croatia, Macedonia and Montenegro accounted for around EUR 2.4 billion revenue from Broadband/Fixed Network business and approximately EUR 1.1 billion EBITDA. In mobile communications, the national companies in Poland, Hungary, Slovakia, Croatia, the Czech Republic, Macedonia and Montenegro serve a total of 29.5 million customers. These companies generated revenue of EUR 5.6 billion and adjusted EBITDA of EUR 2.2 billion in 2007, in some cases recording double-digit growth.
OTE will also benefit from being a member of the Deutsche Telekom Group. On the one hand, it will have access to Deutsche Telekom's technical expertise. On the other hand, the worldwide alliance of Deutsche Telekom's mobile communications companies has, for example, already generated synergies of more than EUR 1.2 billion per year in the past , consisting of procurement advantages for technical equipment, economies of scale in purchasing cell phones, and marketing.
As a result of this agreement, new synergies are expected to be generated with a net present value of approximately €2 billion.
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