With the MTG assets, TDC will also become more expensive to potential bidders, including Sweden’s Telia, a company that has recently been linked again to takeover speculation around the Danish carrier.
Shares of the Danish company slumped the most in two years.
Through the cash-and-shares purchase, carrier TDC would gain a number of well-known Scandinavian entertainment brands, including satellite broadcaster and pay-TV operator Viasat, the Scandinavian TV3 channels and Viaplay, MTG’s local Netflix competitor.
In total about 1,800 of MTG’s 3,800 employees will transfer to TDC, essentially ending 30 years of TV broadcasting for the Swedish company.
“The deal valuation and deal structure looks sensible from TDC’s point of view,” Jefferies analysts including Ulrich Rathe said in a note. “However, we are less convinced about the logic of TDC expanding into Sweden and Finland without business overlap and following a complete exit not long ago.”
Through the deal, TDC — a long-touted target in a consolidation frenzy that’s swept Europe’s telecom industry in recent years — is bulking up with content in a Nordic market that last month saw Sweden’s Stenbeck family merging phone and TV businesses in its portfolio with Tele2’s 26.8bn-krona bid for Com Hem Holding.
TDC shares fell 14% to 34.49 kroner at 11:41am in Copenhagen, the biggest intraday drop since January 27, 2016. Modern Times rose 5.2% to 380 kronor.
TDC will issue 308.9mn shares to MTG’s stockholders. Also, the Stockholm-based company will receive 3.3bn kronor in cash as well as 28% of TDC’s dividend for 2018, TDC said in the statement. The Stenbecks’ investment company Kinnevik AB is also MTG’s biggest owner.
When the TDC shares have been distributed, Kinnevik is expected to hold 5.6% of the Danish carrier. The sale of TV channels and studios leaves MTG with fast-growing businesses in e-sports and mobile gaming and a smaller TV business in Bulgaria.
The Swedish broadcaster has spent the past few years shifting from traditional TV operations into areas where it sees faster growth and chief executive officer Jorgen Madsen Lindemann said on Thursday he’d use the cash portion of the proceeds to invest further in gaming.
The combination of TDC and MTG’s Nordic operations would have preliminary net sales of about 40.2bn kronor and earnings before interest, taxes, depreciation and amortization of 12.6bn kronor for 2017, the Swedish company said. The combined entity will be a stronger rival to former Swedish monopoly Telia and Norway’s Telenor. TDC CEO Pernille Erenbjerg told a conference call the deal was proactive and strategically important for the company as it gains scale and reach to better compete in a world where customers want to watch content when and where they choose, across several platforms, not least on mobile phones and tablets.
“We believe that a Nordic platform is paramount in succeeding in a converged world which we are all operating in,” said Erenbjerg, who will be CEO of the combined group.
Morten Imsgard, a TDC analyst at Sydbank, said the purchase of MTG’s assets was necessary for the Danish carrier, which has seen an increasing number of customers going directly to the source for TV products, circumventing the company’s cable platform YouSee.
“TDC’s TV business was on the path to becoming irrelevant and now the company is buying an opportunity to survive on the long run, but there are no guarantees this will be successful,” Imsgard said by phone.
By gaining Viaplay, the Nordic streaming service MTG launched to fend off Netflix from the local market, TDC will have more than 2mn customers on so-called over-the-top platforms.
It’s an asset that MTG’s Anders Jensen, who will join TDC as deputy CEO once the deal closes, categorized as possibly the most important business MTG is contributing to the new company. Jensen also said TDC would pursue a deal with existing Swedish carriers to offer mobile services in the most populous Nordic country.
TDC also published fourth-quarter earnings on Thursday, one day earlier than scheduled: Fourth-quarter revenue fell 6.8% to 5.05bn kroner, missing analyst estimates of 5.16bn kroner. Ebitda fell 4.8% to 1.96bn kroner, matching estimates.
MTG reported net sales for the fourth quarter that beat the highest estimate: Sales rose to 5.31bn kronor, compared with the average estimate of 5.10bn kronor. MTG’s e-sports sales rose 68% to 515mn kronor.