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Cable Technology Feature Article

September 20, 2010

Telekom Austria Group Completes Acquisition of Two Cable Operators in Bulgaria

By Deepika Mala, TMCnet Contributor

The Telekom Austria Group (News - Alert) has announced the acquisition of 100 percent of Megalan Network AD and 100percent of Spectrum Net AD, two cable operators in Bulgaria.

The combined debt free value of both entities will amount to a total of $108.55 million. Both the companies will be acquired by Telekom Austria Group through its Bulgarian subsidiary Mobiltel and will pay an amount of $94.16 mn out of existing cash flow, which includes a performance oriented element of a total of $18.96 mn. By the end of 2011, this portion of the purchase price will be paid by and is subject to the achievement of performance criteria.

The acquisitions are subject to the approval by the Bulgarian competition authority. The local management of both the cable operators will remain same, as both companies will operate as separate entities for approximately 18 months. However, under the M-Tel brand, the product bundles will already be launched in 2010.

“The convergence of fixed and mobile communication has become a key feature of the telecommunication market. This trend is clearly visible in Telekom Austria Group’s home market and now also increasingly shapes the competitive environment in Bulgaria. As such, the planned acquisition of two cable operators will be the natural next step for Mobiltel. It will allow Mobiltel to become a fully integrated operator and to participate in the strong anticipated growth of fixed broadband, IPTV (News - Alert) and convergent products. Moreover, this step will further strengthen its leading position and will ensure future growth in an existing market, a continuation of Telekom Austria Group’s strategy”, Hannes Ametsreiter (News - Alert), CEO of Telekom Austria Group, says.

Through their product offerings, the two companies complement each other. They also enable Mobiltel to address both business and residential customers. Megalan is the premier provider of residential broadband in Sofia and offers broadband as well as IPTV services.

Spectrum (News - Alert) Net focuses on broadband and voice services and offers the same to business customers based in major cities of Bulgaria. By year end 2009, both the companies had 85,400 access lines. The two companies, in 2009, generated a total of $33.09 mn of revenues and $9.15 mn of EBITDA. The management expects the two companies to achieve a combined EBITDA of $12.55 million for 2010 with further growth being anticipated in the future. Hence, the transaction’s EBITDA multiple for 2011 is estimated at approximately 6.8x.

“Both operations will immediately contribute positively to the Group’s cash flow. Moreover, the acquisitions are included in the current CAPEX guidance for the Group of $0.98 – 1.05 bn for 2010 and are in line with the Group’s stated cash use policy”, Hans Tschuden (News - Alert), CFO of Telekom Austria Group, states. The planned acquisitions of Megalan and Spectrum Net will have no impact on the dividend floor of $0.98 until 2012.

In related news, the Telekom Austria Group has announced that its GigaNet rollout has now reached nearly 1.5 million Austrian households and commercial businesses.

Deepika Mala is a contributing editor for TMCnet. To read more of her articles, please visit her columnist page.

Edited by Erin Harrison