Deutsche Telekom to Pay $1 Billion for Slovak Unit Stake

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The Slovak government approved Deutsche Telekom AG’s 900 million-euro ($1 billion) bid to acquire full ownership of its Slovak unit in a deal that strengthens the German operator’s business in eastern Europe.

Europe’s largest phone company, which bought 51 percent of Slovak Telekom AS in 2000, made a last-minute offer for the 49 percent stake the Slovak government had planned to sell in an initial public offering. The accord includes locking 100 million euros in an escrow account until pending legal disputes are settled, Finance Minister Peter Kazimir told reporters.

“We want to be a European leader,” Deutsche Telekom Chief Executive Officer Timotheus Hoettges said at a briefing in Bratislava on Tuesday. “We want to be successful in Slovakia. Acquiring the 100 percent stake is a logical outcome of our presence.”

Hoettges is seeking to jump-start growth in Europe while keeping the company’s momentum of winning U.S. mobile-phone customers. The operator, with businesses in post-communist European Union members 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.

“It suits their strategy, they’re trying to implement some power into the Eastern Europe market,” Wolfgang Donie, an analyst at Norddeutsche Landesbank Girozentrale in Hanover, said by phone.

Cash Leakage

The purchase doesn’t require regulatory approvals and it’s expected to be completed in the coming weeks, Deutsche Telekom said in a statement. It sees no impact on revenue and earnings before interest, tax, depreciation and amortization, although the deal will increase earnings per share attributable to shareholders, according to the statement.

“The transaction eliminates the cash leakage from dividend payouts to minority shareholders,” Deutsche Telekom said. Its stock rose 2 percent to a one-week high of 16.78 euros at 1:51 p.m. on Tuesday.

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 cabinet of Prime Minister Robert Fico on May 7 put aside the planned IPO after it got a better offer from its German partner. The share sale would have raised about 750 million euros if carried out, representing the biggest by a company from the European Union’s eastern members in almost four years.

The government, which in the past criticized its German partner for a reluctance to distribute the unit’s profits, may use the proceeds from the sale to cut the state debt and boost its holding in the country’s largest power producer, Fico has said.

Kazimir has 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.