Cyfrowy Plans to Buy Polkomtel in $1.7 Billion Share Deal

Cyfrowy Polsat SA, the Polish media group controlled by billionaire Zygmunt Solorz-Zak, agreed to buy mobile-phone company Polkomtel in a 5.15 billion-zloty ($1.7 billion) all-share transaction.

Cyfrowy will issue 243.9 million shares at 21.12 zloty each to acquire an 84 percent stake in Solorz-Zak’s Metelem Holding Company Ltd., which is the sole owner of Warsaw-based Polkomtel, Cyfrowy said in a statement today. It may offer a further 47.3 million shares to the European Bank for Reconstruction and Development if the London-based lender, which owns the remaining 16 percent of Metelem, decides to participate in the deal.

Carriers across Europe are expanding to offer packages of TV, Internet and phone services, a strategy that increases customer loyalty and monthly bills. Vodafone Group Plc bought German cable provider Kabel Deutschland Holding AG this year for 7.5 billion euros ($10.1 billion) and Deutsche Telekom AG agreed to acquire GTS Central Europe for 546 million euros to expand fixed networks in Poland, the Czech Republic and Romania.

“Improving Polkomtel’s financing structure and planned synergies seem the main reasons behind the deal, while the situation on the domestic phone market has worsened since Solorz-Zak took over Polkomtel,” Przemyslaw Sawala-Uryasz, an analyst at UniCredit SpA, said by phone from Warsaw today.

‘Gigantic’ Savings

Cyfrowy shares slumped 8.2 percent to 20.53 zloty at 1:16 p.m. in Warsaw, trimming this year’s advance to 25 percent and valuing the company at 7.15 billion zloty. Yields on Cyfrowy 2018 euro-denominated bonds jumped to a four-month high of 5.449 percent, while yields on Polkomtel’s 2020 Eurobonds declined to a record low of 7.295 percent today.

Cyfrowy sees operating savings from the merger at 3.5 billion zloty while financial savings will reach 500 million zloty through 2019, according to its statement. Combined net debt of Cyfrowy and Metelem is 12 billion zloty, or 3.1 times their joint earnings before interest, taxes, depreciation and amortization, it said. The company plans to lower the ratio to below 2.5 by the end of 2016.

“The deal will increase Cyfrowy’s debt, but the promise of gigantic synergies is encouraging,” Sawala-Uryasz said.

The purchase of Polkomtel, which Solorz-Zak took over in 2011 for 18.1 billion zloty in the biggest leveraged buyout in Poland, will create the country’s largest media and phone company, whose nine-month sales were 9.7 billion zloty. Cyfrowy competes with Warsaw-based TVN SA and Vivendi SA’s pay-TV unit.

High Speed

The transaction comes at the time when Poland is preparing to auction high-speed mobile Internet frequencies. Operators across the globe are rushing to build faster networks based on Long Term Evolution, or LTE, technology that will enable consumers to shop online and stream videos faster and communicate better.

Poland is seeking at least 1.6 billion zloty from the auction, while Austria raised 2 billion euros and the Czech Republic plans to get at least 8.72 billion koruna ($432 million).

Polkomtel, which already offers LTE-based Internet covering 62 percent of Poland’s 38.5 million population, is facing competition from France’s Orange SA and Deutsche Telekom AG, which have yet to start the services.

Cyfrowy plans to complete the Polkomtel acquisition, refinance its own debt and repay Polkomtel’s pay-in-kind notes in the second quarter of next year, according to a presentation on its website. The company then will seek to refinance other Polkomtel debt by 2016.

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