Deutsche Telekom agrees 546 million euros takeover of GTS Central Europe

Germany’s Deutsche Telekom has announced a €546 million ($731 million) takeover of GTS Central Europe aimed at allowing it to provide fixed-line services in parts of central Europe where it is currently a ‘mobile-only’ player.

The German incumbent said the takeover would also allow it to provide cross-border services to business customers – addressing an important pillar of its strategy for European regeneration.

The deal is still subject to regulatory approvals but would put Deutsche Telekom (Bonn, Germany) in control of a business with fiber-optic and data-center assets in the Czech Republic, Hungary, Poland and Romania.

GTS (Warsaw, Poland) also operates in Slovakia but that particular business is set to remain in the hands of company’s current private-equity owners, which include Columbia Capital, HarbourVest Partners, Innova Capital and M/C Partners.

Stripping out the contribution of the Slovak business, GTS had revenues of €347 million and earnings before interest, taxation, depreciation and amortization (EBITDA) of €87 million.

The exclusion of the Slovak business could lower some of the regulatory barriers to the deal given that Deutsche Telekom already has a strong presence in Slovakia thanks to its controlling stake in the country’s former state-owned fixed-line monopoly.

Discussions between Deutsche Telekom and GTS are thought to have been under way for several months but were said to have stumbled over the issue of pricing, with Innova Capital reportedly rejecting an offer of about €500 million as too low.

After removing Slovak assets from the deal, Deutsche Telekom’s fee values the business at about 6.3 times annual EBITDA, which appears to have won over the opposition.

Deutsche Telekom has recently emphasized the importance of having an “integrated network strategy”, taking advantage of both fixed and mobile assets to maximize competitiveness, but the operator’s fixed-line position in the Czech Republic and Poland has remained relatively weak – something the GTS takeover should help to address.

“The acquisition enhances our ability to provide innovative pan-European cross-border telecommunications services,” said Claudia Nemat, Deutsche Telekom’s board member for Europe. “Our existing mobile-centric national companies in the Czech Republic and Poland will benefit most from the added fixed-line infrastructure.”

The deal also suggests that Deutsche Telekom is committed to maintaining its presence in the Czech Republic, following recent speculation that it was considering a sale of its mobile business in the face of ongoing regulatory and competitive challenges.

Rival Telefonica (Madrid, Spain) recently agreed to sell its telecoms business in the Czech Republic to investment firm PPF Group (Amsterdam, Netherlands), after complaining about the tough market environment and expressing frustration over rules for an upcoming auction of 4G spectrum.

To the disgruntlement of the mobile incumbents, regulatory authorities have decided to reserve a large block of spectrum in the coveted 800MHz band for a new entrant to the sector.