Major $2.5bn Nordic consolidation will raise anti-trust concerns

In a move that may well raise anti-trust hackles at the European Commission, two of the largest media and pay TV groups in Scandinavia are planning to merge – Modern Times Group with its Viasat DTH business, being acquired by Danish Telco TDC.

Both companies also have entertainment assets, and the European Commission has already blocked mobile mergers in Denmark, which would have resulted in just two MNOs, rather than three. While mobile is the hot area for the Commission to keep competitive across Europe, entertainment has been a second front, and protecting consumers from monopolization in content has been instrumental in other decisions around Europe.

Notably entertainment assets had to be “levelled off” after the Commission (wrongly in our view) allowed Liberty Global to merge with Ziggo in the Netherlands.

TDC Group and MTG announced that the MTG operations MTG Nordic Entertainment and MTG Studios will be combined with TDC Group to form what it calls the first fully convergent media and communications provider in Europe – a provider with a reach of 10 million households. The only justification on the content front will be if the dominance of Netflix in the region, reaching around 4 million homes, is taken into account in content – which it must be.

The move will see Danish TV service YouSee, Norwegian cable firm Get, Viasat DTH with 1 million customers across the Nordics and Baltics states, Viasat’s Norwegian TV station TV3, OTT service Viaplay and numerous other well-known brands combined into one media and communications company offering broadband, cellular, pay TV and entertainment. The deal values MTG Nordics at SEK 19.55 billion ($2.5 billion).

The precedent of the Netherlands merger and the low involvement in this group in cellular (so far only Norway) and the rising threat of Netflix may provide sufficient justification for the deal which 5 years ago would have been unthinkable in a regulatory sense.

The two companies will have 3 million TV subscribers across Sweden, Denmark, Norway and Finland and a potential reach of more than 10 million households in the Nordic region. It will compete with Telenor’s Canal Digital, Com Hem in Sweden and Telia’s meager IPTV efforts – but will be dominant across multiple territories. Faultline believes that, for this alone, the deal will either be squashed by regulators or some content will have to be sold off, or major long term promises towards OTT services will have to be made, before it can go ahead. However, there are strong regulations about sharing networks throughout the region and there are plenty of small pay TV and broadband operations which rely on these for wholesale, and that may play a part in any decision.

The company says it will have 1,000 tech developers and be able to pioneer next generation entertainment systems towards more personalized entertainment solutions. But the truth is that TDC, controlled for over a decade by US private equity groups, is now 40% owned on the public markets and remains controlled by Blackstone, Permira, Apax Partners and KKR and has always been able to afford to innovate, but through lack of competition in Norway doesn’t feel it has to.

The deal structure will see MTG shareholders get 308,880,260 TDC shares and SEK 3.3 billion cash ($381 million) and will own 28% of the merged entity.