Tuesday, September 15, 2009

Head-scratching time

Whatever its shortcomings as an industry, one can always count on telecom to deliver unusual and inexplicable M&A activity. Down in Greece, ON Telecoms and Vivodi, two companies I studied in great detail once upon a time in a previous incarnation, have decided to get together, in a somewhat unusual deal. Having presumably already burned a lot of cash on their own company, I'm puzzled as to why the vendors would pony-up for the entire capital increase required to get the deal done, especially when the Greek regulator seems to be giving incumbent OTE more room for maneuver on marketing of bundles. Perhaps there's some trade-off in terms of footprint complementarity, but I would be amazed if that could account for the valuation implied by the deal, EUR250m, i.e., the same as Forthnet's market cap, though Forthnet has more subscribers and also a monopoly position in satellite pay-TV.

UPDATE: Okay, I think I was probably a bit too kind here. I think this is about saving face on both sides. Greece is a pretty unique market, in that one can capture c.85% of ITC spend in just two conurbations - Attica (Athens and environs), and Thessaloniki. There's not much scope for regional niche market approaches, it's pretty much head-to-head in the big two urban centers, and there are already four big players (OTE, Forthnet, Hellas Online, and Wind Hellas) present, which history suggests is typically about the number a single market can viably support. Yes, I know that ON has Fastweb's "secret sauce" to a certain extent, but I'm not convinced that makes much difference against a more nimble OTE, Hellas Online in league with Vodafone, Forthnet, and (eventually) a restructured Wind Hellas. The latter two I do think would make an interesting asset combined, but I don't think this particular deal really moves the needle for anyone.

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