Spain's Telefonica struck a deal Tuesday to buy the
E-Plus mobile network in Germany belonging to Dutch-based KPN for
shares and 5 billion euros (6.6 billion dollars) in cash.
The deal would enable Telefonica's O2 German network to overtake its other two competitors in Europe's biggest wireless market.
The accord remains conditional on approval from shareholders and from regulators who may take a dim view of Germany's third and fourth largest networks coming under single ownership.
Under the terms, KPN would receive a 17.6-per-cent stake in Telefonica Germany, a unit known to the public under the 02 brand. KPN said this made the overall sale price for E-Plus equivalent to 8.1 billion euros.
Asked what brand the merged wireless networks would employ, a Telefonica Germany spokesman said, "It's too early to say."
By partnering E-Plus, the country's third-largest mobile carrier with 24 million customers, with O2, the fourth-largest with 19 million, Telefonica would overtake the market leaders as counted by customers.
Deutsche Telekom's T-Mobile unit currently leads the field with 37 million customers, followed by Vodafone's 32 million, according to first-quarter data from Germany's network regulator, Bundesnetzagentur.
Telefonica Germany stock eased 1 per cent to 5.64 euros in Frankfurt, losing some of its sharp gains Monday when the impending deal became public. Stock analysts said the cost savings once Germany had only three operators would outweigh any disadvantages.
Deutsche Telekom stock shot 2.34 per cent higher to 9.34 euros after commentators forecast that the regulators would demand major concessions from Telefonica and E-Plus that might indirectly benefit T-Mobile.
The price paid to the government to rent mobile frequencies would fall once there were only three owners bidding, commentators said.
Long-term total cost savings generated by the deal would range from 5 to 5.5 billion euros, with annual savings of 800 million euros, Telefonica Germany said in Munich.
The two companies first discussed a merger of the networks a year ago, but at that time, the Telefonica Spanish parent was struggling with debt as markets drove up the price of Spanish bonds. With the fall in yields since, Telefonica is again able to borrow cheaply.
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