Deutsche Telekom to Acquire GTS Central Europe for $730m

Deutsche Telekom AG agreed to buy GTS Central Europe for 546 million euros ($730 million), adding landline networks in countries where the German phone company’s services are predominantly wireless.

Deutsche Telekom is acquiring Warsaw-based GTS from private-equity firms including Columbia Capital, HarbourVest Partners, Innova Capital and M/C Partners, the Bonn-based company said yesterday. The transaction, subject to regulatory approvals, will give Deutsche Telekom landline grids in Poland, the Czech Republic, Hungary and Romania.

The price of the purchase, which values GTS at 6.3 times earnings before interest, taxes, depreciation and amortization, “is not a bargain but still an acceptable price,” said Heike Pauls, an analyst at Commerzbank AG in Frankfurt, who has a hold rating on Deutsche Telekom shares. That compares with an industry valuation of six times Ebitda, she said.

“The acquisition makes perfect sense within Deutsche Telekom’s strategy of repositioning in eastern Europe for when the economic recovery begins, as well as growing in integrated offerings where it only has mobile-phone services,” Pauls said.

GTS, founded in 1993, sells Internet and phone service to customers including Coca-Cola Co. and General Motors Co. U.S. telecommunications company Level 3 Communications Inc. had also bid for GTS, two people familiar with the matter said in August. Netia SA, Poland’s second-largest fixed-line carrier, has said it’s interested in the GTS’s Polish assets.

Photographer: Ralph Orlowski/Bloomberg

The logo of Deutsche Telekom AG sits on the roof of the company's headquarters in Bonn, Germany. Close

The logo of Deutsche Telekom AG sits on the roof of the company's headquarters in Bonn, Germany.

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Photographer: Ralph Orlowski/Bloomberg

The logo of Deutsche Telekom AG sits on the roof of the company's headquarters in Bonn, Germany.

Eastern Revival

Deutsche Telekom shares fell 2 percent to 11.12 euros at 11:23 a.m., valuing the company at 49 billion euros.

New landline services may give Deutsche Telekom a chance to revive its businesses in eastern Europe. Last week, the carrier said its third-quarter Ebitda slumped 27 percent in the Czech Republic, and 21 percent in Croatia, hurt by intensifying price competition.

Related: Deutsche Telekom Suspected by EU of Hampering Internet-Speed

GTS reported 2012 revenue of 347 million euros and Ebitda of 87 million euros excluding the Slovak assets, which will be retained by the sellers.

“We are investing against the trend,” Timotheus Hoettges, chief financial officer at Deutsche Telekom, said in a statement. “GTS is a further element for developing our integrated market position comprising mobile and fixed-line network services.”

Also this month, billionaire Petr Kellner’s PPF Group NV agreed to buy a controlling stake in Telefonica Czech Republic AS, the country’s largest phone company, for about $3.4 billion.

Separately, Deutsche Telekom’s T-Mobile Netherlands head, Thomas Berlemann, will leave the Dutch unit at the end of the year, the company said in a statement on its website. Deutsche Telekom increased investment spending in the country, and reported a 19 percent drop in Ebitda for the third quarter.

To contact the reporters on this story: Amy Thomson in London at athomson6@bloomberg.net; Manuel Baigorri in Madrid at mbaigorri@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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