German ISP United Internet will become a network operator by taking control of business telecoms service provider Versatel in a €586 million deal, as it prepares for tough competition in the market.
United Internet revealed today it has agreed to acquire the 74.9% of Versatel it does not already own from private equity company Kohlberg Kravis Roberts (KKR). The deal opens the door to Versatel’s German fibre optic network, which at 37,000 km is the country’s second largest. The network covers 226 German cities, including 19 of the country’s 25 largest.
Versatel will continue to operate as a standalone brand, however; United Internet said it will source DSL connections from its new subsidiary. The company currently rents network capacity from other operators, meaning the direct connections will shed €55 million per year from United Internet’s operating costs.
Ralph Dommermuth, CEO of United Internet, thanked KKR for its cooperation in agreeing the deal, and said the ISP is convinced it “can continue and accelerate” Versatel’s profitability.
United Internet expects the deal to be completed in October. The company will seek new loans to cover repayment of Versatel bank loans totalling €361 million.
Versatel CEO Johannes Pruchnow said the service provider “is an excellent addition” to United Internet’s portfolio “be it in the B-t-B [business-to-business] area or as a network infrastructure supplier.”
The acquisition also beefs up United Internet’s standing in a German market that is becoming increasingly competitive as rivals consolidate.
Vodafone beefed up its fixed-line operation in the country by acquiring Kabel Deutschland, while Telefonica Deutschland’s purchase of rival E-Plus gained the final clearance from the European Commission last week. Incumbent operator Deutsche Telekom is investing heavily in its domestic fixed-line network.
Reports emerged in July stating that KKR was searching for a buyer for Versatel. Last month, Dommermuth admitted United Internet was mulling a bid, telling Reuters that companies of Versatel’s ilk do not often come up for sale.
A Berenberg Bank analyst today told Reuters the price agreed for Versatel is a “steal”, particularly because synergies between the companies “can be delivered with relatively low risk.”