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TDC trades expansion for $6.6bn – the new face of Nordic triple play

TV, broadband, telecommunications and content markets across the Nordics are in farcical states. The collapse of Modern Times Group’s merger with Danish operator TDC this week, before the ink was even dry on the initial announcement, was the latest in a spate of frantic M&A activity – which we feel is essentially all about overseas private equity firms jostling to conquer the entire Nordic region.

A consortium of local pension funds and Australian investment bank Macquarie have scrambled together $6.6 billion to acquire TDC, triggering TDC to abandon its $2.5 billion bid for MTG’s Nordic broadcasting and entertainment business.

Potentially providing another plot twist, Swedish telco Telia has also been investigating a takeover offer for TDC, which has actually been controlled by US private equity groups for over a decade. Given the recent sporadic set of events, a Telia counter bid would not come as a great shock. However, given the overlap they have in Norway on mobile, where a merger deal has already been blocked on anti-trust grounds, any deal with Telia would involve major sell offs, in order to gain regulatory approval – so as to make the deal not worth doing.

It seems ever since Liberty Global was given the green light to acquire Ziggo in the Netherlands, the floodgates of consolidation have opened in Europe, based on the precedent that any merger will be waved through by competition authorities since the frankly irresponsible Dutch decision.

The Nordic countries have suffered the brunt of consolidation, creating a new landscape where a handful of major operators are dominating the region as if it was a single country. The new face of Nordic triple and quad play at a glance looks as follows, subject to change at any moment, of course.

As the table above shows, we have highlighted six dominant Nordic triple play forces in four key countries, to show how the market is veering on dangerous levels of anti-competitive consolidation. TDC is almost a monopoly in its native Denmark with YouSee, and also has some presence in TV and broadband in Norway, which is why the MTG merger may not have flown. MTG’s Viasat is a broadcaster throughout the Nordics, but does not give out subscriber numbers by each country and also has a small fiber and telephony presence.

TDC has publicly expressed concerns about the mounting competition in the TV market and has been increasing its footprint and strengthening its TV offerings to regain lost pay TV subscribers, which it blames on the unbundling of TV and broadband. This idea was pushed by Norwegian watchdog Forbrukerombudet and may, in the future, spread right across Europe.

Swedish mobile operator Tele2 recently (2016) spent $352 million on TDC’s Swedish wing, in a move to boost business sales to large customers in the Nordics, and then went about snapping up Com Hem in Sweden for $3.3 billion. Tele2 now has a significant triple play presence in Sweden, putting pressure on incumbent Telia and Telenor’s Canal Digital.

The combined assets of TDC and MTG, including MTG’s Viasat business, MTG Nordic Entertainment and MTG Studios, proposed short-lived dreams of a converged media and telecommunications service provider spanning 10 million subscribers across Norway, Denmark, Sweden and Finland. Now the next TDC road map under new banking ownership is yet to be outlined publicly, but the investor community knows a thing or two about nipping and tucking in all the right places, so quite the contrary masterplan. Macquarie is a conservative investor known for opting for businesses with guaranteed high returns at low risks.

TDC’s merger with MTG would have raised antitrust concerns at the European Commission, but the rule book has been recently rewritten, particularly as regulators increasingly see Netflix as direct TV competition. That said, various Nordic operators have been partnering with HBO to fend off Netflix, although Netflix is around three times the size of HBO Nordics.

Regulators have been considerably stricter when it comes to telecoms consolidation however, with the European Commission already blocking mobile mergers in Denmark, which would have resulted in just two MNOs, rather than three.

The $6.6 billion bid for TDC from Macquarie Infrastructure and Real Assets, PFA, PKA and ATP, which TDC’s board has recommended shareholders to accept, values the Danish operator at a 25.6% premium to its current share price. Macquarie acquired a majority stake in Polish cable operator Inea from private equity firm Warburg Pincus for an undisclosed sum in December.

“After careful review of our options, the board of directors of TDC believes that the consortium’s offer represents both the most compelling value and the highest transaction certainty benefiting the TDC shareholders. As a result, we have decided to recommend that the shareholders of TDC accept the offer,” said Pierre Danon, chairman of TDC. This deal will not trouble regulators at all.

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