D.Telekom Buys Stake in Greece's OTE, Wants Control


Deutsche Telekom will buy a 20 percent stake in Greece's largest phone company, OTE, for 2.5 billion euros ($3.33 billion) and aims to take full control of the company as it fuels growth via acquisitions.

The German telecoms group will buy the stake from Marfin Investment Group for 26 euros per share, a 19 percent premium to OTE's three-month average share price, Chief Executive Rene Obermann told a conference call on Monday.

The purchase price values OTE at around 7.2 times 2008 earnings before interest, tax, depreciation and amortisation (EBITDA) before synergies, Deutsche Telekom said, adding this "compares well with recent transactions".

Dexia analyst Rob Goyens said the price appeared reasonable given OTE's expected annual revenue growth of 6 to 7 percent and EBITDA growth of 8 to 9 percent.

"Moreover, the acquisition makes sense from a strategic point of view as both companies complement each other well in terms of geographical footprint," Goyens said in a note.

Shares in OTE rose nearly 15 percent on the news, and were up 7.9 percent at 20.66 euros. Deutsche Telekom stock lost 3.2 percent to 11.06 euros, in line with the German blue-chip index.

"It is a good deal. In a gloomy environment, we have a buyer willing to offer an impressive premium. The market will expect synergies and fat cutting in OTE," said Vasilis Kararizos, head of analysis at Proton Securities.

Deutsche Telekom Chief Financial Officer Karl-Gerhard Eick said that while debt capital markets were challenging, its liquidity reserve lines easily covered the deal's funding need.

The transaction needs approval by Deutsche Telekom's supervisory board and the Greek government, which holds about 28 percent in OTE.

"The government's reaction to Deutsche Telekom's purchase of Marfin's stake in OTE is positive," said a senior ministry official in Athens who declined to be named, adding: "Many points of the agreement remain to be clarified."

Deutsche Telekom's said he expected to wrap up talks with the Greek government in the next four to six weeks.  
Full Control

Eick said Deutsche Telekom aimed to increase its stake in OTE but did not want to fully acquire the company. He declined to be drawn on the size of the stake the company was striving to reach, saying only it was more important to have control.

"The size of a further OTE stake is dependent on price and government approval," he said.

The Greek government has said it would like to divest its stake in OTE to a strategic investor as part of its privatisation agenda to raise funds to pay down public debt.

Should Deutsche Telekom fully consolidate OTE it would take on net debt of roughly 4.9 billion euros, Eick said.

Interest costs for the acquisition debt would be covered by the 2008 dividend, assuming OTE's payout ratio remains in line with past levels, Eick said.

OTE issued its first dividend of 0.55 euros per share on 2006 earnings after three years of omitting a payout while it spent about 1 billion euros on a voluntary retirement scheme to cut staff numbers as part of its restructuring.

Deutsche Telekom, which generates more than half of its revenues abroad, has been pursuing acquisitions in mobile communications to boost growth.

Last year, it acquired France Telecom's Dutch unit and U.S. wireless company SunCom. Obermann said that while OTE was not a pure mobile player its mobile business had a strong, growing presence in interesting markets such as Bulgaria, Romania, Macedonia and Albania.

"That gives us access to a population of 56 million," he said. Obermann said rough estimates put synergies at around 2 billion euros but they could amount to more.