Telio acquires NextGenTel and becomes a leading player in the Norwegian broadband market
On 19 December 2012, Telio Holding ASA (“Telio”) and TeliaSonera Norge Holding AB (“TS”) signed an agreement whereby Telio shall acquire TS’ wholly owned subsidiary NextGenTel AS (“NGT”) (the “Acquisition”). Through the Acquisition, Telio will become the number three provider of fixed broadband in the Norwegian market and the number two provider of xDSL broadband.
The key terms of the transaction are as follows:
NGT is valued at NOK 601 million on an enterprise value basis without any interest-bearing debt, but with cash holdings of NOK 30 million at closing Telio finances the Acquisition by (i) debt facilities to be provided by Nordea Bank Norge ASA in the aggregate amount of NOK 500 million, (ii) NOK 70 million in new Telio shares (2,690,480 shares at NOK 26.02 per share) to be issued to TS as part consideration (the “Consideration Shares”), (iii) NOK 30 million in cash to be provided through a loan from T. D. Veen AS, an existing Telio shareholder, which shall be converted into equity at closing of the Acquisition by issue of 1,200,000 new Telio shares at NOK 25 per share , and (iv) NOK 1 million in own cash As soon as practically possible after closing of the Acquisition, TS shall offer 1,200,000 of the Consideration Shares to shareholders in Telio as at the closing date, other than T. D. Veen AS, at NOK 25 per share (the “Secondary Sale”) As part of the Acquisition, TeliaSonera AB and NGT have entered into transition agreements relating to the continuation of joint deliveries of a number of services and products The Acquisition is subject to approval by the Norwegian Competition Authority (Konkurransetilsynet) as well as certain other customary closing conditions Expected closing of the Acquisition is 31 January 2013.
“This acquisition represents a step-change for Telio as we more than double our size and significantly broaden our product offering in our core Norwegian market” comments Eirik Lunde, Telio’s CEO. “We know NGT well since it already provides broadband services to a number of our customers. A combined Telio and NGT will have the potential to become a highly efficient, cost effective and customer-oriented telecom player. We look forward to welcoming the NGT team to the Telio Group.”
Key facts about NextGenTel AS
NGT is a leading provider of broadband and data communication services to consumer and corporate customers. In addition, NGT offers telephony (VoIP) and television (IPTV) services to consumer customers. NGT has a customer base representing approximately 213,000 revenue generating units (RGUs) per December 2012.
NGT was founded in 2000 and is currently the second largest provider of DSL-based (copper lines) broadband, only behind the incumbent player Telenor. NGT has its own equipment and an attractive geographical footprint in Norway covering approximately 60% of Norwegian households. For the remaining 40% of Norwegian households, NGT offers broadband services through a wholesale agreement with Telenor.
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NGT has two wholly owned subsidiaries, Broadpark AS (dormant) and Sandslimarka 31 AS (dormant but with ownership of the offices used by NGT in Bergen).
NGT’s offering towards the consumer market is dominated by broadband (~90% of turnover) followed by VoIP (~7%) and IPTV (~3%). Within broadband services NGT offers all technologies (xDSL, fiber and mobile), but xDSL is the dominant access technology in NGT’s portfolio. NGT’s VoIP and IPTV services are currently based on third-party products.
Within NGT’s corporate offering, broadband & data communication constitutes the largest product with ~60% of revenues. Data communication services for TS represents the second largest area with close to 40% of revenues.
NGT is headquartered in Bergen and has been a wholly owned subsidiary of TS since 2006. NGT generated revenues of NOK 917 million and EBITDA of NOK 154 million (before non-recurring items) in 2011 and had 269 permanent and 76 temporary employees on a full-time equivalents (FTE) basis as of 30 September 2012. The executive management team of NGT consists of:
Rolf Barmen, CEO Odd Bjørn Ur, CFO Morten Ågnes, Head of Marketing & Communication Per Heiberg-Andersen, Head of Business & Consumer Segment Kari Marvik, Director of Technology Torbjørn Fauskanger, Vice President HR Tore Nyhammer, Head of Customer Operations
Rolf Barmen (CEO) will leave NGT prior to closing of the Acquisition.
The board of directors of NGT is composed of:
Malin Victoria Frenning, Chairperson Cecilie Moe Garmannslund Erik Peter Lav Geir Jensen Jens Pallof Lööw Lars Gunnar Klasson Lars Kristian Solheim Vidar Skogedal
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Key financial information for NextGenTel AS
NOKm 2009 2010 2011 2011 Q1-Q3 2012 Q1-Q3 Q3 2011 Q3 2012 Revenue 916 970 917 682 693 229 231 Cost of goods sold 450 487 462 345 347 115 113 Payroll expenses 140 164 161 127 119 37 38 Other operating expenses 163 171 167 120 123 38 39 EBITDA 164 149 128 90 105 39 40 Depreciation and amortisation 152 152 143 109 93 35 30 EBIT 12 (3) (15) (18) 12 4 10 Net financial expenses 3 4 5 4 3 1 1 Operating profit before tax 15 1 (10) (14) 15 5 11 Tax on ordinary result 4 0 (3) Net profit (loss) of the year 11 0 (8)
NOKm 2009 2010 2011 2011 Q1-Q3 2012 Q1-Q3 Q3 2011 Q3 2012 EBITDA as per financial statements 164 149 128 90 105 39 39 Restructuring provision - - 19 19 13 - - Costs related to change of logo - - 4 4 - 1 - HQ cost adjustment at year end - 4 3 - - - - EBITDA adjusted for non- 164 154 154 113 118 40 39 recurring items
Key ratios Revenue growth n.a. 6 % -6 % n.a. 2 % n.a. 1 % Gross margin 51 % 50 % 50 % 49 % 50 % 50 % 51 % Adjusted EBITDA margin 18 % 16 % 17 % 17 % 17 % 17 % 17 % EBITDA margin 18 % 15 % 14 % 13 % 15 % 17 % 18 % EBIT margin 1 % 0 % -2 % -3 % 2 % 2 % 4 %
NOKm Dec 2009 Dec 2010 Dec 2011 Sep 2011 Sep 2012 Intangible assets 206 181 184 176 200 Deferred tax asset - - 4 2 - Property and land 53 54 54 54 54 Machinery and equipment 270 241 209 216 199 Capitalized costs and other non 4 3 1 2 1 current assets Total non current assets 533 479 451 451 453 Accounts receivable 135 116 131 132 138 Other receivables 8 8 24 11 29 Cash and cash equivalents 151 202 227 232 198 Total current assets 294 326 382 375 365 Total assets 827 805 833 826 819 Equity 585 585 577 575 588 Deferred tax liability 1 2 - - 1 Total non current liabilities 1 2 - - 1 Short-term debt to financial institutions 2 - - - - Accounts payable 64 56 89 77 83 Public duties payable 32 18 18 16 14 Tax payable 0 0 2 - - Other current liabilities 143 143 147 158 134 Total current liabilities 241 218 256 251 230 Total liabilities 243 219 256 251 231 Total equity and liabilities 827 805 833 826 819
Source: The figures presented are based on audited financial statements for the years 2009, 2010, 2011 and the unaudited financial statements for Q1, Q2 and Q3 2012.
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Transaction structure and financing
Telio acquires NGT for a purchase price of NOK 601 million free of interest-bearing debt, but with NOK 30 million in cash at closing. The Acquisition will be financed by Telio through a combination of debt and equity as follows:
Cash consideration of NOK 531 million, secured through: o NOK 500 million in debt facilities from Nordea Bank Norge ASA o NOK 30 million in a loan from T. D. Veen AS, an existing Telio shareholder, which shall be converted into equity at closing of the Acquisition by issue of 1,200,000 new Telio shares at NOK 25 per share o NOK 1 million in own cash Share consideration of NOK 70 million o Directed share issue of 2,690,480 Consideration Shares to be issued to TS at closing of the Acquisition. The number of Consideration Shares has been determined based on the volume weighted share price of Telio for a 90 days period prior to signing of the share purchase agreement for the Acquisition (~NOK 26.02 as of 17 Dec).
The key terms of the debt facilities from Nordea Bank Norge ASA are:
Term loan – NOK 200 million o 3 year term loan o To be repaid in semi-annual installments of 2 x NOK 25 million, 2 x NOK 35 million and 2 x NOK 40 million Bridge-loan of NOK 300 million in the period from closing of the Acquisition to settlement of a planned bond issue in 2013 o 9 month bridge-loan
Telio has entered into an agreement with T. D. Veen AS, whereby T. D. Veen AS shall, upon request, make available a NOK 30 million loan to Telio prior to the closing of the Acquisition. The loan will accrue interests at a rate of 1 month NIBOR + 200 bps from disbursement until the loan is converted into equity at closing or repaid.
Telio will publish an information memorandum with respect to the Acquisition in accordance with Oslo Børs’ Continuing Obligations section 3.5 (the “Information Memorandum”).
The issuance of the Consideration Shares and the shares to be issued to T. D. Veen AS will be resolved by Telio’s board of directors at closing of the Acquisition pursuant to the authorization granted by the general meeting on 12 April 2012. The shares to be issued to T. D. Veen AS are expected to be listed on Oslo Børs immediately after issuance in reliance on section 7-5 no 1 of the Norwegian Securities Trading Act (the “STA”). The Consideration Shares are expected to be listed following publication of the Information Memorandum (as a prospectus equivalent document) in reliance on section 7-5 no 7 of the STA.
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Following the issuance of the Consideration Shares and the shares to be issued to T. D. Veen AS, the share capital of Telio will be NOK 2,328,318, divided into 23,283,180 shares with a par value of NOK 0.10 per share. T. D. Veen AS currently holds 819,704 shares (approximately 4.23% of outstanding shares and votes). Following the issuance of new shares, T. D. Veen AS will hold 2,019,704 shares (approximately 8.67% of outstanding shares and votes) and TS will hold 2,690,480 shares (approximately 11.56% of outstanding shares and votes).
TS has undertaken to, as soon as practically possible following closing of the Acquisition, offer 1,200,000 Consideration Shares to shareholders in Telio as at the closing date (as registered in the shareholder registry on the third trading day after the closing date), other than T.D. Veen AS, at a price of NOK 25 per share. A national prospectus (registreringsprospekt), as defined in section 7-10 of the STA, will be published in connection with the Secondary Sale. The Secondary Sale will not be directed to shareholders who are resident in jurisdictions where such offering would be unlawful or (in jurisdictions other than Norway) require any prospectus filing, registration or similar action. Provided that closing of the Acquisition occurs on 31 January 2013, the Secondary Sale is expected to be carried out early March 2013.
TS has entered into a European put option agreement with T. D. Veen AS under which TS has a right (but no obligation) to sell to T. D. Veen AS up to 800,000 Consideration Shares less the number of Consideration Shares sold and transferred from TS to other Telio shareholders in connection with the Secondary Sale, on 1 September 2013 at a price of NOK 25 per share. For the rest of its Telio shares, TS has a lock-up for a period of 9 months from closing of the NGT sale.
NGT will become a wholly owned subsidiary of Telio following completion of the Acquisition.
As part of the Acquisition, TeliaSonera AB and NGT have signed a transitional services agreement, a supply agreement and a letter of intent framework services agreement. The transitional services agreement regulates the continued provision of certain deliverables to and from NGT and entities in the TeliaSonera group during a transitional period until permanent deliverables have been established. The supply agreement regulates the joint execution of certain end customer agreements. The letter of intent framework services agreement sets out the parties’ intention to negotiate in good faith to agree on the terms and conditions for NGT’s role as TeliaSonera’s preferred partner for certain of the TeliaSonera services that NGT provides in the Norwegian market today, as well as provision by NGT of certain access and other products to TeliaSonera in Norway. All three agreements will enter into force on the closing date of the Acquisition.
Strategic rationale
The Norwegian telecom market is undergoing rapid changes driven by technological developments and altered communication patters between people. These changes require swift adaptation by the providers of telecommunication services. Telio has held a leading position within VoIP services for a number of years in the Norwegian market and has recently expanded its product offering to include related services, including mobile and broadband services (through an agreement with NGT). The Acquisition will not only secure Telio in-house capabilities and delivery of such broadband services, but also significantly expand Telio’s customer base. The combined entity will thus have substantial
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potential for cross-selling of services to the combined company’s customer portfolio. Furthermore, the combined entity will have significant potential for realizing scale benefits and more cost effective operations.
Aggregated financial information for the combined entity
Based on their annual accounts for 2011, Telio and NGT would have generated combined revenues of approximately NOK 1,302 million in 2011, with a combined EBITDA (before non-recurring items) of NOK 275 million. The combined balance sheet totals would have been NOK 1,043 million.
The Acquisition is expected to have a dilutive effect on Telio’s earnings per share in 2013 due to transaction related costs, interest expenses and a higher number of shares outstanding. However, from 2014 onwards, the Acquisition is expected to be accretive.
Further information and contact persons
Telio will host a press conference regarding this Acquisition at 10:00 am on 20 December 2012 at Felix Konferansesenter, Aker Brygge, Oslo.
For further inquiries please contact the following Telio representatives:
Eirik Lunde, CEO Mob: 48 09 69 64
Tom Nøttveit, CFO Mob: 41 53 97 14
Advisors
Telio has been advised by Arctic Securities and Ernst & Young on this transaction.
Cautionary note
This stock exchange release contains certain forward-looking statements. By their nature, forward- looking statements involve risk and uncertainty, as they reflect current expectations and assumptions as to future events and circumstances that may not prove accurate. A number of factors could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements.
This stock exchange release is not for distribution, directly or indirectly, in or into the United States, Canada, Australia, Japan or any other jurisdiction in which such distribution would be unlawful or would require registration or other measures.
This stock exchange release does not constitute an offer for sale of securities in any jurisdiction. The securities mentioned herein have not been, and will not be, registered under the United States Securities Act of 1933 (the "U.S. Securities Act"), and may not be offered or sold in the United States except pursuant to an exemption from the registration requirements of the U.S. Securities Act. There will be no public offer of securities in the United States.
This information is subject of the disclosure requirements according to section 5-12 of the Norwegian Securities Trading Act. 6