Thank you for standing by. Welcome to the conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session, at which time, if you wish to ask a question, you will need to press star one on your telephone keypad. I would now like to hand the conference over to your first speaker today, Jesper Wilgodt. Thank you, sir. Please go ahead.
Good morning, all. Welcome to this call on Telia's latest acquisition of Tele2 Norway. This is Jesper Wilgodt, Head of Investor Relations. With me today, I have our CEO, Johan Dennelind, present, and our CFO, Christian Luiga, is here as well. With that, I would like to hand over to Johan.
Thank you, Jesper. Good morning, all. Let me take you quickly through the presentation that is also available on our website. Then we'll go straight into Q&A. This morning we have announced that we will acquire Tele2 Norway, SEK 5.1 billion on a cash- and debt-free basis. It is going to strengthen our position in Norway on the mobile side to a clear number 2, with about 40% market share. Based on 2013, this is around 1.2 EV/Sales, and if we include the expected synergies, which we'll come back to, around 5.5 EV/EBITDA multiple. Obviously, this is subject to the approval from the Norwegian Competition Authority, which we believe will take us some time through this year and maybe into Q1 2015. We'll cover that later on. Briefly on the strategic rationale of the deal.
This fits nicely in our core home markets. Also in our commitment to strengthen our operations in the Nordic Baltics around network connectivity. Another pillar we have talked about is to enhance the network connectivity and our competitive operations. This is also a very good fit to that strategic pillar. If you look at the position in the market, as I mentioned, will take us up to above 40% on the mobile side. If you look at the total telecom market, it's still reaching around 20% or slightly above 20%. In the mobile space, clear number 2. On the total pie, still not a dominant player at all. This is a good deal, we believe, for the Norwegian customers and society. It will enable us to bring better internet services to more people faster.
We are committing ourselves also to front-load some of the CapEx that were planned for 2018 as a part of the license commitment of 98%. This will now be done already by 2016 to the benefit of both the Tele2 and the TeliaSonera NetCom customers in Norway. Without jumping to any conclusions, we're also looking at the total set of brands, attractive brands in the Norwegian markets that will be part of our portfolio, which we'll obviously review and optimize leading up to next year. It is a very strong position on many of these brands. Looking at the deal a bit more on the synergy side, we see this as a clear opportunity to extract concrete synergies of at least SEK 800 million. The full effect of those SEK 800 million-plus will come from 2016.
Of course, they will already be visible in 2015 given the closing in Q1. In order to extract these synergies, there are some integration costs that we will incur, mainly related to the network, and estimated to SEK 250 million-SEK 450 million in 2015. We're also having to upgrade the network to cater for the traffic of Tele2 today, estimated to around SEK 350 million additional CapEx. On top of this deal-specific OpEx and CapEx, we are also, as I said, front-loading some of the CapEx related to the license obligations, estimated to SEK 300 million, which would have come in 2017, 2018, will now come in 2015 and 2016 to reach 98% 4G population coverage by end of 2016. In brief summary, SEK 5.1 billion on a cash- and debt-free basis. You got the multiples estimated.
Next year, this is most likely neutral to EPS and positive in 2016, obviously depending a bit on the actual timing of the closing. A clear strategic fit to our new strategic framework. No issues on the funding. We can come back to it later with Christian. We are today starting the engagement with the Norwegian Competition authorities to see what it will take to bring this deal to a closing at the latest in Q1 2015. That is the very quick summary of the deal that we have announced today, and I'm sure you have listened in to also the previous call, and maybe you have answered some of your questions, but we are obviously here to answer any further questions you may have. Over to you, Jesper .
I would say over to the operator. Please open up for questions.
Thank you, sir. As a reminder, ladies and gentlemen, if you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. If you wish to cancel the request, please press the hash key. That's star one to ask a question. Thank you, sir. Your first question comes from the line of Barry Zetterlund. Please ask your question.
Hi. Good morning, guys. Just two questions, if I may. First is on concessions and whether you expect the Norwegian authorities to incur any concessions in doing the deal. Specifically, I'd like to address the mobile towers that you're buying. I think at last count, Telia, you had about 1,700 towers. Whether you expect to use those or indeed you'll dismantle them or potentially maybe use them as part of a concession. Secondly, whether you would even consider selling one of the brands as part of a concession. If there was to be a concession, the question that would follow that is would there be a buyer, and have you sounded out whether ICE is potentially interested in any of those assets? Thank you.
Thank you. Obviously, we are focused on getting this deal to where it is today, announced. Next phase is now to get into the discussions on what it takes to get this through. We don't want to jump any conclusions or have any discussions outside the competitor authority. We want to start there and see how they view this deal. We obviously see this as a clear benefit for consumers and society. To show that commitment, we're also front-loading the CapEx, as I mentioned, to bring faster, better internet services to 98% of the Norwegians in 2016. I don't want to speculate, and we're not going to comment on the details of the deal at this point of time.
We're convinced that this will be a deal that we can bring to a closing, otherwise we would not have announced it, and that goes for our partner as well there. We are just focusing now on completing this deal and see what it means, and we will keep you posted on any such findings through the process.
My second question is on the cost synergies. As a read across to total margin, do you expect to be able to maintain the current 30.6% margin that you did last year on the combined entity from 2016 onwards, or do you think that could indeed be enhanced? Just to give us an idea of the base for the synergies. Are you looking at the synergies based on the kind of limited margin that Telia is doing today, or effectively no margin that Telia Norway is doing today, or should we think of it as synergies on top of the potential margin that Telia could have done two years from now?
Look, we're not going to go into any details more than we have done, I think you can probably do the math from your end. Just to remind you on a few things, the SEK 800 million at least synergies is important, it's also important to take into account the combined revenues or intercompany trade that needs to be removed from the two P&Ls. You can't simply add the SEK 7 billion and SEK 4.1 billion together. You need to remove SEK 700 million and then add the synergies of the SEK 800 million at least, then you get to a margin number, which you have to model. We're very positive on the synergy side. They're clear, concrete, and predictable in that sense. That's why we can commit to at least SEK 800 million.
Sure. Okay. Thank you very much, congrats on the deal.
Thank you.
Thank you. Your next question comes from the line of George Irimie. Please ask a question.
I have two questions, please. The first one is around the timing of the synergies. There's a similar deal in Germany where the synergies take five years to get to a maximum run rate. I was wondering whether there's any specific reason why you are so confident you'll get the synergies run rate already almost 12 years after the deal closes, being almost above SEK 800 million per annum. The second question is around fixed line. You are believers in convergence in Sweden, and I was wondering what are the options for you in Norway, and bear in mind that you're putting more capital in mobile, whether you have any ideas on how to future-proof that with fixed. Thank you.
Thank you. On the first one, it's pretty simple. As we say, most of those SEK 800 million are related to traffic costs, and those are quite digital and predictable, as I said. That's why we're very clear on the SEK 800 million coming in early on. That's a very important part and component of the value that we see. Otherwise, obviously, we would not have been able to argue the SEK 5.1 billion. That's quick, clear, and concrete synergies. On the fixed side, the point that I want to make first is that this does not solve the full converged story in Norway. Reminding you that Norway is not a converged market in that sense yet. Let's get back to that other pillar of our strategy further down the road. This is a mobile network and a competitive operations deal, I would say.
Even if there are 60,000 fixed customers coming with this deal, these are mainly related to resellers rather than own infrastructure.
Perhaps if I could rephrase the first question then. If you can deliver more than SEK 800 million synergies next year in 2016, does that mean when we look at 2018, 2019 with shops or towers or any other things that you could potentially sell, that this synergy run rate will be significantly higher?
We say at least SEK 800 million. At this point in time and the clarity of the deal we have, the timing of the deal that we see, we can commit to SEK 800 million. If that changes, we will update along the way.
Right. Next question, please.
Thank you. Your next question comes from the line of Andreas Joelsson. Please ask your question.
Yes. Good morning. A comment or a question on the strategy that you briefly mentioned. Tele2, of course, has been the challenger in Norway. Is the intention to keep Tele2 as a sort of a low-cost brand, or do you plan to merge this and have a full NetCom brand position, so to say? Secondly, when you've done this deal, do you believe that you are ready for further M&A opportunities in the Nordics or in Europe overall, or will this take too much of your time, so to say?
Thank you, Andreas. On the brand side, we can just make the statement today that there are several attractive brands in Tele2 and in TeliaSonera. We have NetCom and Chess. They have four brands. We will look at these now and see how we optimize them. Obviously keeping the strong momentum that some of these brands have is important. Exactly how that will look like, we will get back to towards the end of this process before closing. Then we can talk about how the actual plan looks like. We have some good ideas on how to take this to a good business in Norway, obviously. On the M&A side, this is something that will be a Norwegian deal. This is in-market consolidation.
We believe that that is not going to defocus us in our other activities that we also clearly have on our agenda, both operationally and business development wise. We'll see what comes up and what's available and what makes sense.
Thanks.
Thank you. Your next question comes from the line of Maurice Patrick. Please ask your question.
Morning, guys. Maurice here. A couple from me. The first one is around confidence in the deal closure and regulatory approval. Tele2 seem very confident that would go through. I guess some thoughts from yourselves in terms of why you have such high confidence given you are going from three to two players. The second question relates to the CapEx spend. You talk about an additional CapEx spend to handle the increased traffic and also bringing forward your 4G investments somewhat as well. Have you not made any assumption for using some of the Tele2 infrastructure yourselves, some of the radio sites I think you may be able to keep as part of the deal to offset that, or is that very much a worst-case scenario? Thank you.
Thank you. We are very confident that the deal will go through. I think we are as confident as Tele2 in our discussions, at least. We see the same thing coming. It's not something we should just take for granted. We need to be good in our engagement with the Norwegian Competition Authority. The deal makes sense. There are still three networks after this deal in the market. Several brands, two nationwide networks, which is our clear view that that's something very viable for customers in society. That's why we're showing the commitment of upping our CapEx. Very confident indeed, but we will keep you posted on the sentiments on the other side. On the CapEx side, we estimate this to be the net CapEx needed to upgrade and front load. Based on what we know today, that's the figure.
If that changes, obviously, we will update again. It's a combination of our own and existing.
Just as a quick follow-up, in terms of the OpEx synergies, I'm assuming there's no assumption there for lower market subsidies as a result of lower competitive intensity. This is clearly just hard costs you can take out.
Well, it's mainly traffic related. Obviously, there are other natural synergies when you combine two large entities, but it's mainly related to traffic.
Great. Thank you so much.
Thank you. Your next question comes from the line of Peter Nielsen. Please ask your question.
Good, thanks. Johan literally just answered my question. Thank you. Thank you, Peter.
Thank you. Your next question comes from the line of Stefan Gauffin. Please ask your question.
Yes, hi. Thank you. Just an additional comment on CapEx. In the SEK 800 million, just to make sure there is today no CapEx synergy that is expected. Second question, which is related, are you considering or are you ready to consider any sort of disposal of the network to a new market entrant? Thank you.
Christian, I was just going to ask you a first question, leave the second one to you Johan. The synergies are only income statement synergies. The CapEx and investments are not included in those.
Thank you.
Can you repeat the second question, please?
The second question is, are you ready to consider selling bits and pieces of the network of Tele2 to a new entrant if it is asked as a remedy?
I go back to my earlier comment that we can't go into any things that we haven't discussed yet with the competition authorities. We are clear that we think this deal will go through with reasonable remedies. We have now taken one clear commitment to the Norwegian customers and society by front-loading CapEx, and that's a very important commitment that we will, of course, use in our discussion. What else is required? Let's see what comes.
Thank you.
Okay. Your next question.
Yes, next question, please.
Thank you. Your next question comes from the line of Lena Österberg. Please ask your question.
Yes, I was going to ask you, referring back to the question from Andreas earlier on further potential M&A. Denmark is a very fragmented market, and you have a very weak position. Would you consider doing something to improve that if there was an opportunity? Also, Spain, you've been looking to sell for a long time, and now given that you have a more positive EU stance in market consolidation, do you think we should expect a deal there this year?
Look, we wanted to speak about Norway mainly. Let's give you a couple of quick comments, Lena, on Denmark at least. We have taken our first step there to strengthen the operation and get to a better situation with the network operation with Telenor, evaluating that, obviously, if that's enough or not, and very close to the development in the Danish market. On Spain, let's come back to that when we talk about the Q2.
Okay. Thank you.
Thank you.
Thank you. Your next question comes from the line of Russell Waller. Please ask your question.
Yeah. Hi, it's Russell from New Street Research. Just a very quick clarification. In terms of regulatory approval, is there a chance that DG Competition becomes involved, or is this certainly going to be a matter for the Norwegian antitrust authorities only? Thank you.
Well, we believe this is a Norwegian process with the Norwegian competition authorities only. That's my view right now. We'll have to get back also on that one if that changes. I'm sure they're looking at what's happening elsewhere, this has to be seen on the merits on its own. Also, with the backdrop of what happened in December when the auction process took place and the outcome of that. As I mentioned, with three networks, several brands, two nationwide coverage operators, I think is the main focus in our discussions now going forward.
Okay. Thank you.
Thank you. Your next question comes from the line of Manish Beria. Please ask your question.
Yes. Hi there. I just wanted to ask, is there any breakup clause or concession that you might have give to Tele2 if the deal is not approved?
We're commenting on the deal that will go through. We are convinced that it will, and not going to give any specifics on any other points.
Okay. Thanks a lot.
Thank you. All right, any further questions?
No, sir. There are no further questions. Please continue.
Okay. Thank you all, and hope to speak to you in one and a half weeks' time. Thank you very much.
Thank you. That does conclude your conference for today. Thank you for participating. You may disconnect.