Julian Hewett
Will telecom M&A increase in Europe?
We've seen some truly spectacular mega-deals and consolidation in the US during the last 12 months. 2004 kicked off with Cingular's acquisition of AT&T Wireless. Then we had Sprint + Nextel, and SBC's acquisition of AT&T. And now Verizon and Qwest are squabbling over MCI. In Europe, deals have been increasing recently too. There have been some substantial deals, although not on the scale of the US mega-deals. For example, MobilFon/Vodafone ($3.5bn), Turkcell/TeliaSonera ($3.1bn), and Cesky/Telefonica (€2.75bn). And of course, Italy's Wind is currently in play, expected to be valued at a massive €12bn when it's sold by owner Enel to private equity company Weather Investments. So, are these deals a pre-cursor to some bigger deals in Europe? It's certainly a question that journalists have been asking us recently. And the bankers appear to be hiring staff in this sector. We think there are unlikely to be any mega-mergers between West European incumbents. Telefonica's acquisition of Cesky Telecom was a surprise. But, in general, the modest synergies on offer tend to be outweighed by the politics (eg Swisscom's failed attempt to acquire Telekom Austria) - not to mention the misery of merging two ex-civil-service cultures. However, incumbents have fixed the balance sheet problems that held them back in the early "noughties". Indeed, their cash generation is increasing in most cases. So, acquisition has crept back onto their agenda. At the same time, many altnets are struggling (particularly those that depend on a legacy switched voice minutes). There could be plenty of "for sale" signs before long. Of course, incumbents will not normally be allowed to acquire altnets in their home country - but they could well be interested in building their portfolio elsewhere. One can predict the flavour that these acquisitions are likely to take. BT wants to build out its corporate networking capability across Europe. Telecom Italia wants to expand its emerging broadband coverage in other European countries. Deutsche Telekom wants to increase its presence in East Europe. TeliaSonera and Telenor want to extend their mobile portfolios in developing markets in East Europe and Asia. Life's getting interesting again. Incumbents are starting to expand again, but their international strategies contrast with each other.
