Merger of T-Mobile US and Sprint finally gets the legal green light

The New York Federal District Court has ruled T-Mobile US and Sprint can finally go ahead and merge if they can still be bothered.

“Today was a huge victory for this merger and now we are finally able to focus on the last steps to get this merger done!,” exclaimed T-Mobile CEO John Legere. “We want to thank the Court for its thorough review of the facts we presented in our case. We’ve said it all along: the New T-Mobile will be a supercharged Un-carrier that is great for consumers and great for competition.

“The broad and deep 5G network that only our combined companies will be able to bring to life is going to change wireless … and beyond. Look out Dumb and Dumber and Big Cable – we are coming for you … and you haven’t seen anything yet!”

“This is a big win and a big day for the New T-Mobile!” exclaimed Mike Sievert, COO of T-Mobile. “Now we can get to work finishing what we set out to do – bringing a new standard for value, speed, coverage, quality and customer service to U.S. consumers everywhere and truly changing wireless for good. Now we’re laser-focused on finishing the few open items that remain but our eye is on the prize: finally bringing this long-awaited merger and all the goodness it will deliver to a close as early as April 1, 2020. We are so ready to bring the New T-Mobile to life!”

“Judge Marrero’s decision validates our view that this merger is in the best interests of the U.S. economy and American consumers,” said a calmer Sprint Executive Chairman Marcelo Claure. “Today brings us a big step closer to creating a combined company that will provide nationwide 5G, lower costs, and a high-performing network that will invigorate competition to the benefit of all mobile wireless and in-home broadband consumers.

With the support of federal regulators and now this Court, we will focus on quickly completing the few remaining necessary steps to close this transaction. I am proud of my Sprint team’s dedication, passion and resilience throughout the merger review process, and we are ready to make the vision of a New T-Mobile a reality.”

Nuff said.

Telefónica reportedly receives €10 billion bid for 51% of its Hispanoamérica business

A group of Latin American oligarchs seem to have had a whip-round to buy a majority stake in all Telefónica operations in the continent, bar Brazil.

The rumour comes courtesy of Spanish newspaper El Mundo, which claims the fattest cats in each of the Spanish-speaking Latin American countries Telefónica currently operates in have clubbed together to bid for a controlling stake in Telefónica Hispanoamérica for €10 billion, which they would then distribute among themselves. It looks like the plan then would be to IPO another quarter of it to claw back some of the cash.

We’re told the bid originated from Colombia, but covers Argentina, Chile, Venezuela, Ecuador, México, Perú and Uruguay too. It should be stressed that when El Mundo approached Telefónica about the story, it denied there is evidence of the offer, which seems a tad slippery. It’s certainly no secret that Telefónica wants to flog its Hispanoamérica unit, since it formally announced the plan late last year.

If any of this is accurate it values Telefónica Hispanoamérica at around €20 billion, which is serious money. But even if it sold all of it for cash, that would still only halve the epic debt pile it has managed to accumulate over the years. On the flip side it would then have the liquidity to double down on its European and Brazilian operations, which should make things interesting in those markets.

CityFibre buys FibreNation from debt-laden TalkTalk for £200 million

CityFibre has announced it will acquire FibreNation from TalkTalk for £200 million, as the latter has struggled to source funds to help it meet the three million FTTH connections it targeted.

As part of the deal, TalkTalk will become a wholesale customer across both consumer and business markets. Work has already begun on the full-fibre network, offering services to more than 100,000 premises in York and Dewsbury, and even with projects set to break ground in Harrogate, Knaresborough and Ripon, reaching the 3 million objective was becoming more difficult to imagine.

With cash-rich backers in the form of Goldman Sachs, CityFibre can more realistically deliver on these promises. The firm has upped its target to 8 million FTTH homes-passed by 2025, up from 5 million.

“Today’s announcement establishes CityFibre as the UK’s third national digital infrastructure platform allowing millions more consumers and businesses to benefit from access to faster, more reliable services,” said CityFibre CEO Greg Mesch.

“The UK is a service-based economy, and this runs best on full fibre. Ensuring national coverage is critical and this can only be achieved by driving infrastructure competition at scale. This deal demonstrates the appetite from industry to see it established.”

Rumours of this transaction has been swirling through the industry for some time now, though it appears the talks were put on hold following the free-broadband-for-all pledge made by the Labour party ahead of last months’ General Election. Nationalisation of Openreach would certainly undermine investment decisions, though the duo now believe the deal should be complete by March.

For CityFibre, this is a page from the playbook of old. This is a firm which was founded after purchasing and merging several, independent distressed financial assets.

FibreNation was founded in 2018 as an independent company to deliver the TalkTalk fibre rollout strategy. Under the leadership of CEO Tristia Harrison, TalkTalk has evolved into a much more combative telco, attempting to disrupt the connectivity status quo and regularly criticising its more established rivals. Harrison’s management and PR approach seems very similar to CityFibre CEO Greg Mesch.

Taking advantage of the enthusiasm in fibre-connectivity, TalkTalk set out an ambitious target of reaching 3 million homes with full-fibre broadband by 2025. However, attracting investment from third-parties soon appeared to be the only means by which this could be done. This is where TalkTalk has struggled in recent months.

Infrastructure investor InfraCaptial, part of the M&G Group, looked to be the most likely candidate to foot the £1.5 billion bill, though talks fell through. Reports suggest InfraCaptial did not value an 80% stake in FibreNation in the same way as TalkTalk. Since that point, TalkTalk has been in discussions with the likes of iCon and Macquarie, though it seems CityFibre was the best option.

While TalkTalk will become the anchor tenant for the network as it is being deployed, this is far from best-case scenario. TalkTalk has said the funds will be used to ‘strengthen the balance sheet’, which could mean numerous things, though as the team reported net debt of £1.041 billion during the last earnings call, it would be fair to assume it will be used to reduce the burden.

For CityFibre, this is a win. The company was founded by collecting distressed fibre assets and merging into a single entity, and it has spoken about doing the same to fuel growth in the future.

CityFibre has ambitions to challenge the likes of Openreach and Virgin Media on a nationwide, scaled basis, though the number of ‘alt-nets’ is creating a fragmented competitive landscape. This is good for the consumer, as price wars will emerge, though it is not sustainable for the industry. However, if you have a cash-rich parent-company like CityFibre, it is a waiting game; smaller fibre companies will become financially stressed, presenting good value for network growth by acquisition.

Adding FibreNation’s assets into the mix, CityFibre will soon have a fibre footprint in more than 100 towns and cities outside of London. It is quickly achieving the scaled vision the management team have often spoken about and will soon become a much more viable rival to the Openreach wholesale business.

As a result of the agreement with TalkTalk, CityFibre has also had to restructure its partnership with Vodafone. The original agreement offered exclusivity for Vodafone to deliver fibre services for the time which networks were being deployed in each city, though the new agreement offers Vodafone 12-month exclusive basis as homes become available for service in each of the 12 towns and cities covered in phase one of the deployment. CityFibre will now be free to discuss terms with other ISPs.

With Vodafone and TalkTalk confirmed customers of CityFibre, and rumours swirling that it might be about to poach Sky from Openreach, the firm is adding commercial credibility to an extensive bank account. It does appear CityFibre is evolving from the moany, thorn in the side it was a few years back, to a genuine, nationwide alternative to Openreach.

Visa drops $5.3 billion on Plaid in bid to future proof itself

Financial services giant Visa is acquiring fintech app enabler Plaid in an apparent bid to ensure it doesn’t get left behind in the app economy.

Despite the $5.3 billion price tag, few people will have heard of Plaid. That’s because its sole function is to act as the plumbing in linking together apps with bank accounts, mainly in the US. It’s easy to assume that Visa and Mastercard already controlled nearly all of this but it seems not, with a quarter of Americans using Plaid to link their bank accounts with apps such as Venmo.

“We are extremely excited about our acquisition of Plaid and how it enhances the growth trajectory of our business,” said Al Kelly, CEO of Visa. “Plaid is a leader in the fast growing fintech world with best-in-class capabilities and talent. The acquisition, combined with our many fintech efforts already underway, will position Visa to deliver even more value for developers, financial institutions and consumers.

“This acquisition is the natural evolution of Visa’s 60-year journey from safely and securely connecting buyers and sellers to connecting consumers with digital financial services. The combination of Visa and Plaid will put us at the epicenter of the fintech world, expanding our total addressable market and accelerating our long-term revenue growth trajectory.”

“Plaid’s mission is to make money easier for everyone, and we are excited for this opportunity to continue delivering on that promise at a global scale,” said Zach Perret, CEO and co-founder of Plaid. “Visa is trusted by billions of consumers, businesses and financial institutions as a key part of the financial ecosystem, and together Visa and Plaid can support the rapid growth of digital financial services.”

Visa and a bunch of its competitors were early investors in Plaid, so it seems to have the blessing of the financial services establishment. It looks like the price paid was around double the valuation implied by Plaid’s last round of funding, so Visa had to compensate its peers generously to have it all to itself. Investors didn’t seem that bothered either way, however, with Visa’s share price barely acknowledging the news. Here’s a slide from Visa’s presentation summarising the thinking behind the move.

It’s déjà vu all over again as Vivendi suffers another Italian defeat

Italian Media company Mediaset wants to merge its Italian and Spanish businesses, something that significant shareholder Vivendi opposes.

The combined company would be called MediaFor Europe and a Mediaset EGM recently voted to go ahead with the merger plan. French conglomerate Vivendi owns around 30% of Mediaset, but two thirds of its stake is held in a trust by a company called Simon Fiduciaria, following a ruling by the Italian telecoms regulator that owning big chunks of both Mediaset and operator group TIM violates media plurality laws.

Subsequently it seems to have been decided that Simon Fiduciaria doesn’t get a vote in Mediaset general meetings, thus greatly diminishing Vivendi’s voice at such events. Vivendi reckons that’s the only reason the Berlusconi family, which owns almost half of Mediaset via its investment vehicle Finnivest, won the recent vote and it’s not happy about it.

Vivendi deplores today’s irregular approval by the Mediaset Extraordinary Shareholders Meeting of the new merger plan regarding MediaForEurope,” said a Vivendi press release. “The new plan has only gained approval because of the unlawful refusal to allow Simon Fiduciaria (which holds 19.9% of Mediaset share capital) to vote, relying on an interpretation of the Italian media law which is contrary to the EU Treaty.

“In addition, the new plan was adopted ignoring Italian law procedures regarding trans-border mergers, including the withdrawal rights for shareholders, and has merely removed some blatantly abusive clauses, without modifying the disproportionate rights granted to Fininvest.

“All recent judicial decisions and opinions, in particular from the Advocate General of the Court of Justice of the European Union in December, have not discouraged Fininvest’s representatives in the Mediaset Board from depriving minority shareholders of their most basic rights. The Mediaset Board has once again placed the company in a situation of serious legal uncertainty.”

All this huffing and puffing from a massive conglomerate that routinely tries to hijack the running of large companies without going to the trouble of buying them is a bit rich. Last year Vivendi’s protracted attempt to do so at TIM failed and history seems to be repeating itself, with Mediaset regarding Vivendi’s interests in the company as hostile. Vivendi’s principle objection to this merger seems to be a dilution of its shareholding in the combined entity, rather than anything to do with the strategy and health of the company as a whole.

Intel drops $2 billion on AI chip maker Habana Labs

Having once more failed at mobile, US chip giant Intel is doubling down on the datacenter, where artificial intelligence is expected to be ever more prominent.

Spending two billion bucks on AI chip maker Habana Labs is a major statement of intent in this regard. The Israel-based company specialises in programmable deep learning accelerators for the datacenter. Intel already has a strong position in general purpose processors used in that environment, but is under pressure when it comes to AI from rivals such as Nvidia.

“This acquisition advances our AI strategy, which is to provide customers with solutions to fit every performance need – from the intelligent edge to the data center,” said Navin Shenoy, GM of the Data Platforms Group at Intel. “More specifically, Habana turbo-charges our AI offerings for the datacenter with a high-performance training processor family and a standards-based programming environment to address evolving AI workloads.

“We know that customers are looking for ease of programmability with purpose-built AI solutions, as well as superior, scalable performance on a wide variety of workloads and neural network topologies. That’s why we’re thrilled to have an AI team of Habana’s caliber with a proven track record of execution joining Intel. Our combined IP and expertise will deliver unmatched computing performance and efficiency for AI workloads in the data center.”

Habana will remain semi-autonomous with Chairman Avigdor Willenz (pictured) hanging around for a while. Intel says its AI-driven datacenter business is growing 20% annually and will bring in $3.5 billion this year. With datacenters becoming an evermore important component of telecoms networks, this looks like Intel’s best remaining hope of capitalising on an industry that has eluded it for so long.

T-Mobile/Sprint merger may increase ARPU – what’s wrong with that?

On the first day of the TMUS/Sprinter merger antitrust trial it was revealed that a Sprint exec thinks the merged company will be able to raise prices.

Reuters reports that the prosecution presented WhatsApp messages from Roger Sole, Sprint’s CMO, to his former CEO Marcelo Claure, sent in 2017, that speculated Sprint’s ARPU (average revenue per user) could increase by five bucks after the merger. Sole is insisting this was just conjecture about some distant possible outcome, but it’s nonetheless being used as evidence against the merger.

The fundamental assumption underlying this is that consumers are always best served by lower prices, but is this necessarily the case? Sole also testified that even lowering prices had proven ineffective at luring and retaining new subscribers because as soon as they experienced how rubbish the Sprint network is, they left before you could say ‘churn’.

Sole is effectively highlighting the Catch-22 position MNOs always claim to be in when restricted by operators. If their ARPU is too low then they won’t have the cash to invest in the network, and then everyone loses out. Regulators will typically say ‘that’s your problem mate, we’re just worried about prices’, which is also a valid position, and one used to push back whenever consolidation threatens to take the number of MNOs in a given market below four.

There is little hard evidence, however, that three MNOs constitute insufficient competition and that a reduction from four to three necessarily increases prices. Moreover, the merger of the third and fourth players would presumably improve the network for customers of both, which could be viewed as justification for raising prices by itself.

As we’ve seen with the disappointing early showing from TMUS’s 5G network, MNOs will have to spend a lot of money to deliver on all the promises mad on behalf of 5G. That cash has to come from somewhere and it seems only fair that subscribers contribute. It is, of course, possible that any increase in ARPU just gets trousered by senior telco execs and investors, but that’s not reason enough to automatically oppose any attempt to do so.

A Deutsche Telekom merger with Orange is unlikely for many reasons

Rumours of corporate courtship between Deutsche Telekom and Orange have resurfaced by they seem as implausible as ever.

The bringer of the rumour this time is German publication Handelsblatt, which witters on for several paragraphs before getting to the point that DT CEO Timotheus Höttges is wargaming how a merger with French operator Orange would play out. Even allowing for the idiosyncrasies of Google Trnaslate, the piece seems to be thin on substance, but they presumably got the goss from somewhere so we thought we’d do a spot of war gaming of our own.

The first major impediment to such a deal would be ownership of the combined entity. You might think two former state monopolies from similar-sized countries might be roughly the same size, but that’s not the case. DT has a market cap of around €73 billion, while Orange is worth a mere €40 bil.

The last time this came up this was apparently the main deal breaker but surely shareholders should just get a stake in the combined entity in proportion to the market caps at time of deal. This would give DT shareholders roughly two thirds of the merged company and Orange one third. It’s presumably a lot more complicated than that, but it’s not immediately obvious to us why.

Then there’s the not inconsiderable matter of regulation. The European Commission isn’t a big fan of M&A because it reckons the consumer always ends up getting ripped off as a result. However in the case of telecoms this has tended to be focused on keeping at least four MNOs in each country. If the EC focuses solely on national considerations then the fact that two of the world’s largest operators merging has broader competition implications may be overlooked.

They’re not totally in the clear, however, as both have significant operations in Poland, Romania and Slovakia. They would presumably have to do that manoeuvre when they hand over a bunch of their combined assets in each country, which in turn would be made available for a new entrant to the market to ensure the magic MNO number is maintained.

But lastly, and most importantly, we have the resulting colour scheme. Unless you have an irrational love of 60s psychedelia, pink and orange have no business appearing on the same sheet of paper. If they chose to combine them, possibly in proportion with the respective market caps, we’d be left with some kind of smoked salmon abomination that would surely spell disaster for the resulting company. For this reason alone we can’t see the deal happening.

SFR FTTH buys fibre wholesaler Covage for a billion euros

The French fibre sector is undergoing a spot of consolidation with the news that Altice-owned SFR is acquiring the country’s fourth largest fibre wholesaler.

Covage is currently owned by hedge fund Cube Infrastructure, which has apparently decided its time to liquidate its position. It currently serves 800,000 homes with fibre, with another 1.6 million in the pipeline. This acquisition will give SFR FTTH current coverage of 2.5 million homes and 5.5 million on the way.

“I am very pleased that we are further expanding the leading FTTH wholesaler in Europe,” said Patrick Drahi, Altice founder. “We are extremely proud to integrate Covage, a great company, with a portfolio of areas in France complementary to ours. With this transaction we also bring onboard excellent local relationships.

“We continue to be focused on deleveraging Altice Europe notably thanks to growing revenues and EBITDA which will be supplemented with disposal proceeds. As I have explained previously, we are in advanced discussions with several parties in relation to our Portuguese fibre asset. This process is supported by the significant appetite for fibre in Europe clearly demonstrated by the present transaction which has been strongly supported by our financial partners in SFR FTTH.”

Dropping a cool billion on an acquisition is a funny way of deleveraging, but who are we to argue with a telecoms tycoon? SFR is the main competitor to Orange in the French fibre market, with both of them acting as wholesalers in what seems to be a fairly competitive environment. Further consolidation wouldn’t come as a surprise, especially with the help of a bit of creative accounting.

Telenor finally gets rid of its stake in Veon

Years after beginning the process, Norwegian telco group Telenor has flogged its remaining Veon shares.

“Telenor has today sold its remaining 157 million shares in Veon,” said a Telenor filing. “The total consideration amounts to USD 362 million (around NOK 3.3 billion), with cash effect in the fourth quarter of 2019. This transaction is in line with the previously communicated strategy and concludes the final sell-down in Veon.”

The previous communication was over four years ago and it’s not clear what took it so long. Telenor has been offloading chunks of Veon, which does much of its business in Russia, at regular intervals ever since. Telenor has been in the process of retreating from its more exotic ventures for a while, having apparently decided it’s more comfortable with the relative stability of the Nordics.

So much so, in fact, that it has now formed its operations in that region into a cluster, no less. At the start of the month it announced that Jukka Leinonen, CEO of DNA Finland, which is owned by Telenor, would be in charge of said cluster. That means he’s now Chair of Telenor Sweden and Telenor Denmark too.

“I am honoured to head the new Nordic cluster and look forward to further developing Telenor Group’s position in the region through strengthened collaboration between the Nordic Telenor companies,” said Leinonen. I see great potential for value creation, for instance better roaming for customers, developing the B2B segment in the cluster, 5G and IoT.”