Advised freenet, an alternative telecoms company, on the sale of its DSL division to United Internet, a major German Internet Service Provider
May 2009
(DSL division)
acquired by
$172 million
  • Sector: Communication Services
  • Deal Type: Strategic Deals; Public Deals
  • Engagement type: Sellside
  • Size: $172 million
Scroll

Arma Partners is pleased to announce that it acted as exclusive financial advisor to freenet AG (DB: FNT) in relation to the disposal of its DSL Internet access business to United Internet AG’s (DB: UTDI) subsidiary 1&1 Internet AG for a total consideration of c. €123m (c. $172m) in cash and shares, which was announced on May 26, 2009.

United Internet also agreed to pay a premium in shares, valued at announcement at c. €49m (c. $68m), or its equivalent in cash, for a preferred distribution agreement with freenet, which runs until the end of 2014. The premium will be paid dependent on the achievement of defined distribution targets.

Closing of the transaction is subject to German Federal Cartel Office approval. The parties will undertake a customer migration exercise after closing, in which they expect to migrate c. 700,000 broadband customers by year end 2009.

For Q1 2009, freenet had reported revenues for discontinued business activities, comprising mainly its DSL business, of c. €64m and EBITDA of c. €(9m).

The disposal of the DSL business marks another phase in freenet’s transformation to become a leading mobile services provider in the German market. With the acquisition of debitel Group in July 2008, freenet became a leading mobile services provider with c. 19m subscribers and c. 20% of the overall German mobile market.

This is the third transaction on which Arma has worked with freenet, having advised on freenet’s €1.6bn acquisition of debitel Group and freenet’s acquisition of Tiscali’s German broadband and narrowband contracts in January 2007.

– With 1.2 million subscribers, freenet’s DSL business is the 5th largest broadband Internet Service Provider in Germany

– freenet’s DSL business already offers not only regional but also nationwide Unbundled Local Loop services, based on regulated IP-Bitstream access to Deutsche Telekom’s access infrastructure

– United Internet is a leading German Internet Service Provider with global operations, delivering value-added Internet services, comprising DSL and narrowband Internet access, webhosting and information management, to SoHos, SMBs and retail customers

– In addition to Internet services, United Internet provides a wide range of marketing and sales solutions

– freenet’s DSL access business was subscale in a consolidating DSL access market, characterised by slowing growth and tough competitiion

– United Internet expected to migrate at least c. 700K high-value broadband customers by year end 2009 to its own infrastructure, becoming the number 2 DSL provider in the German market measured by the number of customers

– United Internet will also enter into a preferred distribution agreement with freenet, which runs until the end of 2014. United Internet will pay an additional premium in shares, valued at announcement at up to c. €49m, depending on the sales success of this distribution agreement

– The disposal of the DSL access business marks the continuation of freenet’s strategy to concentrate on mobile and mobile Internet, which freenet embarked on having acquired debitel in July 2008

– Arma Partners has a longstanding relationship with freenet, having been retained as lead financial advisor on four assignments, including the transformational €1.6bn acquisition of debitel in 2008

– Arma structured a two stage auction process, with Stage 1 focusing on educating potential acquirers about the value and potential of the freenet DSL customer base

– Based on the expressions of interest received and detailed discussions with preferred bidders, Arma structured transaction terms and perimeter to make the proposed transaction attractive to select bidders and maintain competitive tension

– Through a carefully executed process, Arma managed to achieve an acceptable transaction for freenet AG in spite of a very difficult macroeconomic environment and a difficult DSL market in Germany