Tele2 points optimistically towards acquisitions

Swedish telco Tele2 has promised there is much to be optimistic about, directing investor attention towards acquisitions and away from the mixed bag of financial results for the first quarter of 2018.

Top-line figures were very positive for the business, demonstrating 5% growth year-on-year, though the encouraging performance wasn’t spread evenly across the group. The Swedish domestic market saw revenues decline by 3%, while Estonia and Germany were also down 8% and 14% respectively. Kazakhstan and Croatia showed very healthy growth, boosting numbers by 21% and 20%, while Lithuania and Latvia were also up year-on-year with 11% and 14% increases.

“The first quarter of 2018 marks the beginning of a year of major transformation for the Tele2 Group,” said CEO Allison Kirkby.

“Preparations for the two transformative transactions in Sweden and Netherlands are well underway. The regulatory approval processes are on track – we are in the pre-notification phase with

constructive dialogues with the EC, and look forward to filing the formal merger notifications during the second quarter.”

This seems to be the message here; ignore what happened over the last couple of months and look at our shiny new acquisitions. Doesn’t matter what the condition of the underlying business is, the telco way is to buy something and discuss synergies. In Sweden, Com Hem will aid Tele2 with its convergence strategy, while the proposed merger with T-Mobile in the Netherlands will help the pair deal with increased competition.

Kirkby has pointed towards an incredibly competitive market in Sweden as one of the main reasons for the struggle, though the introduction of Com Hem into the business will go some way in creating a more combative converged player in the market. The combination of the pair has been billed as a natural step for both companies combining the Tele2 mobile offering with the fixed and content proposition of Com Hem.

This is perhaps one of those examples where inorganic diversification would be a sensible step; we’ve seen the mess telcos can get themselves into when they try to do content on their own, so buying is probably better. The combined business will be the second largest mobile telephony and fixed broadband provider in Sweden and the market leader in digital TV; it’s the convergence dream.

Looking at the second transaction, if Com Hem is offensive the merger with T-Mobile is nothing but the opposite. Tele2 Netherlands and T-Mobile Netherlands will be merged as a single company owing to market pressure. Tele2 will hold a 25% share in the combined company and receive a cash payment of €190 million upon closing, but this is essentially the team admitting defeat; better have the cash and do away with the troublesome Dutch.

While we have pointed out the troubles in the Tele2 business, it isn’t in the worst place. The Com Hem acquisition will only be good news for the business, and exiting a troublesome market is not a bad idea right now. In the challenger markets in the Baltic states, it is in another very healthy position. As it stands, there are certainly telcos in a worse place.