France Telecom and TDC to merge Swiss units

The consolidation of Europe’s mobile telecommunications sector accelerated on Wednesday with the merger of the Swiss operations of France Télécom and Denmark’s TDC.

The combination of France Telecom’s Orange and Sunrise, owned by TDC of Denmark – Switzerland’s second and third biggest mobile groups, respectively – is designed to create a stronger competitor to Swisscom, the state-controlled market leader.

The deal follows the recent decision by France Telecom and Deutsche Telekom to combine their operations in the UK, and highlights attempts by smaller players to bulk up to save costs in highly competitive and mature mobile telecommunications markets such as Switzerland and the UK.

France Telecom will take 75 per cent of the new venture, paying TDC €1.5bn, with the Danish group holding the remaining 25 per cent. The new group would be led by Thomas Sieber, current head of Orange Switzerland. Christoph Brand, the Sunrise chief, will leave after the initial integration.

The merged company will have about 3.4m mobile clients, creating a 38 per cent market share. In fixed line and broadband, the 1.1m combined customers will account for about 13 per cent of fixed broadband connections.

“Following the UK joint venture between Orange and T-Mobile, France Telecom completes another major in-market consolidation, consistent with its M&A policy”, said Gervais Pellissier, the French group’s deputy chief executive.

Jesper Ovesen, chief financial officer of TDC, said the deal “is a natural last step towards TDC focusing on the Nordic markets, which is our strategic goal”.

To facilitate its ultimate exit, TDC’s remaining 25 per cent stake may be bought back by the merged company using cash flow from a buyback programme by the first quarter of 2014, giving the entire stake a net present value of €1.2bn.

The deal also gives TDC the right to sell its stake to third parties, for the combined company to be floated, or for France Telecom to buy out its partner.

The two companies said the merged Swiss operation would have had pro forma sales of SFr3.1bn ($3bn) last year, and operating profits of SFr809m. The deal was expected to lead to savings with a net present value of SFr3.2bn, split between operating expenditures and capital investment.

Operating synergies were forecast to reach an annual SFr200m, although there would be integration costs of SFr140m. Savings of SFr570m were expected on capital expenditure between 2010 and 2015, while annual savings of SFr65m were predicted thereafter.

Neither side mentioned job cuts, but there is significant overlap between Orange’s and Sunrise’s operations in Switzerland.

The two companies claimed the deal would improve network coverage and reduce the number of mobile antennas required under future investment plans – a significant concern in environmentally conscious Switzerland.

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