Under the hammer

As the takeovers of Danish incumbent telco TDC and UK mobile operator O2 close, attention is already turning to who might be next. The deals, worth 112 billion and 131 billion respectively, have few similarities apart from raising the benchmark for such takeovers in future.

The complexion of the two acquisitions could not be more different. TDC has been bought by a consortium of private equity investors - Permira, Apax Partners, the Blackstone Group, Kohlberg Kravis Roberts and Providence Equity Partners. The group won control following a bid battle with another private equity grouping in late 2005; they had been expected to be joined by Switzerland's incumbent telco, Swisscom, until the authorities in Bern (who are Swisscom's majority shareholder) put a stop to any such overseas moves by the carrier.

The O2 deal is the culmination of a year-long saga that saw Germany's Deutsche Telekom and KPN of the Netherlands in talks concerning a joint bid for the company, and Deutsche Telekom considering a sole bid, before Telef"”nica of Spain emerged with an offer for the cellco. The sheer size of the bid may have deterred private equity groups from tabling rival offers, as would O2's compact operating structure, which reduces the scope for breaking it up to release value.

People are searching for clues that these two deals might contain as to the performance of European telecom M&A in 2006. There are several pointers - although where exactly they lead remains anyone's guess.

One would be that predatory PEIs become uncomfortable upon breaching the 110 billion barrier. That still lets them set their sights on Cable & Wireless of the UK and a number of EU-based incumbents such as Portugal Telecom and Belgacom of Belgium.

If, as Telef"”nica has done in the case of O2, that threshold is raised to 130 billion and beyond, a whole slew of new targets come into the frame. These include TeliaSonera of Finland, Swisscom, KPN and Norway's Telenor. Even BT of the UK, a long-standing target of the PEIs, is within range.

Likewise, while there are few pure-play mobile operators like O2 (produced when BT spun off its wireless business in 2001) in Europe, there are plenty of second mobile carriers and even incumbent PTO cellular arms that have been dangled away from the parent for the predators to seek out. You can expect much thrashing in the water during 2006 as trade and private equity investors chase down the spoils. Q

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