Tele Columbus (ETR:TC1) has bought PrimaCom for €711m (US$774m) to combine Germany’s third and fourth largest cable operators.
JP Morgan, Goldman Sachs, and BNP Paribas have all committed debt financing, and Tele Columbus has signalled plans for…
Tele Columbus (ETR:TC1) has bought PrimaCom for €711m (US$774m) to combine Germany’s third and fourth largest cable operators.
JP Morgan, Goldman Sachs, and BNP Paribas have all committed debt financing, and Tele Columbus has signalled plans for a rights issue before the end of the year.
The two companies will have combined revenues of €345m (US$375m) meaning the transaction falls below the Federal Cartel Office’s €500m (US$544m) threshold to review a deal. As such, Tele Columbus said the deal does not require an antitrust or regulatory review, and thus expects it to close on 31 July.
Tele Columbus is using cash on hand, fully underwritten financing including both a senior and junior tranche, and a €125m (US$136m) equity bridge loan to fund the deal. The bridge loan and possibly some of the debt financing will be repaid using the proceeds from the rights issue, or a similar equity-raising measure, before the end of the year, again guaranteed by JP Morgan, Goldman Sachs, and BNP Paribas. JP Morgan also served as Tele Columbus’s exclusive financial adviser, while PrimaCom was advised by Jefferies.
Banks have lined up €550m (US$598m) of leveraged loans, according to Reuters report citing banking sources. The amount debt to fund the deal will rise beyond this figure when undrawn facilities are added, the report said. Tele Columbus declined to comment on the report.
After the transaction closes and the bridge has been repaid, Tele Columbus anticipates its net debt to EBITDA ratio will have risen from 2.9x to 5x, although this may be lower depending on the size of the equity raise. It expects its leverage to fall between 3x and 4x within the next 18 to 24 months.
PrimaCom, which was taken over by its lenders in 2011, has long been seen as Germany’s most likely cable takeover target. Deutsche Telekom, Unitymedia and Kabel Deutschland, subsequently purchased by Vodafone, have all been previously linked to it.
More consolidation to come
Tele Columbus CEO Ronny Verhelst has said he is keen to do more deals. Speaking today, he said “we want to consolidate further in the German cable sector”, extolling the virtues of scale.
The Tele Columbus-PrimaCom deal leaves Pepcom, an oft-mentioned consolidation target owned by London-based Star Capital Partners, as the next largest cable operator.
Tele Columbus listed on the Frankfurt Stock Exchange in January, raising €367m (US$427m). It used the proceeds to improve its capital structure to prepare for opportunistic acquisitions.
Commenting on the PrimaCom transaction, Verhelst described it as “transformational” and said it would strengthen his company’s position as the number three German cableco.
“Strategically and economically, this is a highly logical combination with significant network overlap between the two businesses and complimentary housing association customer bases,” Verhelst said.
Joachim Wendel, CEO of PrimaCom, said the combined operator would “build an excellent basis for the future competition with the global media and telecommunications corporates.”
Bringing together the two businesses’ networks will create a footprint connecting 2.8 million homes. Tele Columbus said it would enhance its core eastern German regions as well as important western regions such as Baden-Wuerttemberg, Hamburg, Hesse and North Rhine-Westphalia.
Tele Columbus had revenues of €213m (US$232m) last year and EBITDA of €99m (US$108m), recording a 46% margin.
Liepzig-based PrimaCom generated €132m (US$143m) in revenues in 2014 and EBITDA of €55m (US$60m), to give a 42% margin. In March 2014 it expanded its reach by acquiring smaller rival Deutsche Telekabel, and at the time said the deal would likely to trigger further consolidation.
