Deutsche Telekom Said to Bid for Slovak Unit, Ending IPO

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Deutsche Telekom AG CEO Timotheus Hoettges
Deutsche Telekom Chief Executive Officer Timotheus Hoettges is seeking to jump start growth in Europe while keeping the company’s momentum of winning U.S. Photographer: Ralph Orlowski/Bloomberg

Deutsche Telekom AG is in talks to buy the rest of Slovak Telekom AS it doesn’t own, prompting the local government to cancel an initial public offering for its 49 percent stake, three people with knowledge of the matter said.

The German phone company, which bought 51 percent of the Bratislava-based unit for about $1 billion in July 2000, placed a bid that beats the 750 million euros ($851 million) the government would have collected based on the pricing before the IPO was set to proceed, two of the people said on Thursday. Shares in Deutsche Telekom, which declined to comment, traded at 16.36 euros at 2:41 p.m. in Frankfurt, rebounding from an intra-day low of 16.

“From a valuation point of view, this IPO didn’t offer a substantial discount at a time when the local telecommunications market might be on the eve of a more intense price war that could keep up the pressure on Slovak Telekom’s earnings,” said Jakub Krawczyk, an analyst at Raiffeisen Centrobank AG in Vienna.

Deutsche Telekom Chief Executive Officer Timotheus Hoettges is seeking to jump start growth in Europe while keeping the company’s momentum of winning U.S. mobile-phone customers. Europe’s largest phone company, with businesses in eastern European countries such as Hungary, Poland and the Czech Republic, has about 2.2 million mobile-phone customers and almost 900,000 landline subscriptions in Slovakia, according to its 2014 report.

Unexpected Decision

The Slovak government on Wednesday -- the day when the order book closed -- adjourned debate on the results of the IPO until Thursday. The next day, officials emerged from a meeting and surprisingly said they were setting aside the share offering because of a better last-minute deal. Slovak authorities didn’t name the investor.

“We think that the stake has higher value,” said Finance Minister Peter Kazimir in the Bratislava briefing. “The reason why we stopped the process is that we are able to sell it for more. The offer is notably better.”

The government, which in the past criticized its German partner for a reluctance to distribute the Slovak unit’s profits, may use the proceeds from the sale to cut the state debt. Kazimir cited Slovak Telekom’s dividend policy and ownership structure as the main reasons why the IPO was priced at the bottom of the indicative price range, set at between 17.7 euros and 23.6 euros per share.

The IPO pricing valued the company at 4.6 times enterprise value to earnings before interest, taxes, depreciation and amortization, or Ebitda, according to data compiled by Bloomberg show. That compares with a ratio of 4.1 for Orange Polska SA, Poland’s largest phone company, and 4.7 for its eastern European peers.

Profit Drop

Slovak Telekom’s Ebitda dropped 7.8 percent last year to 310.7 million euros as revenue declined 5.1 percent to 767.6 million euros. Consolidated net income at the former monopoly fell 12 percent to 43.6 million euros, or 50 euro cents per share.

The IPO taking place in Bratislava and London would have been the biggest by a company from the European Union’s eastern members in almost four years. The offer received overnight is binding and the government will decide on it “within days, or at most weeks,” Kazimir said.

If approved, the deal wouldn’t have a strong effect on Deutsche Telekom, Stephane Beyazian, an analyst at Raymond James Financial Inc., said by e-mail.

“Honestly we’re talking about an asset that’d be less than 2 percent group value,” Beyazian said. “So whatever happens it is very limited one way or the other.”

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