Morningstar | Telia Agrees to Acquire TDC’s Norwegian Assets; No Change to Our FVE, Shares Fairly Valued
Telia Company announced it will acquire TDC’s Norwegian operations. We think this is a good strategic fit, but at a high price. However, we don’t think the price is excessive enough to lower our SEK 40 per share fair value estimate for Telia. It also has no effect on our narrow moat rating. We believe the shares are fairly valued. The deal will enable Telia to offer a converged product in Norway in competition with Telenor. Telia is the second largest wireless operator in Norway, and TDC had built out a fiber-based network that provides fixed-line and pay TV services to 516,000 subscribers and broadband and TV services to over 1 million retail and business customers. The combined firms should create a stronger competitor. However, the price paid of NOK 21 billion was quite high. TDC Norway only generated NOK 4 billion in revenue and NOK 1.7 billion in EBITDA in 2017. Thus, the deal is valued at over 5 times sales and 12 times EBITDA. However, Telia claims that with synergies it will drop to a more reasonable 9 times EBITDA.Telia Company provides telecommunication services in the Nordic and Baltic countries, the markets of Eurasia, including Russia, Turkey and Spain. Co. has three business segments: Mobility Services, which comprises operations in Sweden, Finland, Norway, Denmark, Lithuania, Latvia, Estonia and Spain; Broadband Services, which comprises operations in Sweden, Finland, Denmark, Lithuania, Latvia (49.0%), Estonia and international carrier operations; and Eurasia, which comprises mobile operations in Kazakhstan, Azerbaijan, Uzbekistan, Tajikistan, Georgia, Moldova and Nepal. The business area also includes Co.'s shareholdings in OAO MegaFon, Russia and Turkcell Iletisim Hizmetleri A.S., Turkey.
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