Market Insight

Telenor sells Danish cable business to Stofa

January 10, 2011

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In the first major cable transaction of 2011, Norwegian telecoms and pay TV major Telenor has agreed to sell its Danish cable assets to rival Stofa. Effective immediately, the acquisition will see a transfer of all of Telenor's Danish channel distribution business and distribution agreements with local housing associations to Stofa. Telenor cited lack of 'synergies' between its various Nordic cable operations as key reasons for the sale, and stated that it would focus on developing its Canal Digital pan-Nordic pay satellite service.

Telenor will continue to operate its cable businesses in Sweden and Norway, although the sale of its cable assets in Sweden appears to be a possibility.

In what will likely be an all-cash deal, private equity fund Ratos - which acquired Stofa from telco TeliaSonera in July 2010 - will fund the Canal Digital Denmark acquisition. Canal Digital has been valued at DKr100m (€13.4m) for its 56,000 RGUs (Revenue Generating Units - of which 32,000 are triple play subscribers) and distribution agreements with housing/antenna associations serving 633,000 households. The sale is expected to be completed by end Q1 2011, following regulatory approval.

On the face of it, Stofa's acquisition of Canal Digital's Danish cable assets appears to be fairly good value for money. Stofa has paid just under €240 per RGU - well below western European averages for cable acquisitions, and lower than Stofa's valuation of €399 per RGU when it was acquired by Ratos in July 2010. IHS Screen Digest analysis of M&A data indicates that RGU valuations, on average, have fallen over the past years since reaching their peak in 1999-2000 when NTL paid over €14,000 per RGU in its acquisition of UK cable rival Telewest. In the Nordic region, the highest per-RGU valuation paid was in 2006 by private equity consortium NTC (€8,300 per RGU) for cable incumbent YouSee.

Although Canal Digital's direct cable subscribers are minimal - merely 56,000 when compared to Stofa's 350,000 or YouSee's 1.27m -  we believe its distribution agreements with antenna associations covering a combined 633,000 households are the prized assets that Stofa has targeted. Stofa primarily operates a business-to-business model - providing antenna and housing associations with its various analogue and digital cable products which these associations then supply to their tenants. The additional housing association agreements obtained via the Canal Digital acquisition will help bolster its position in this space. Key competitor and market incumbent YouSee, on the other hand, has a far greater share of direct customer relationships, selling triple-play services directly to subscribers.

In Norway, Telenor's home market, cable operations have already been restructured and moved out of Telenor Broadcast, which houses the pay satellite service. The Danish cable business has seen minimal subscriber additions the past few years, and was reported to have been sustaining continued losses. Its customer base, which largely consisted of long term contracts with antenna associations, ensured that ARPU/revenue increases from upselling of services and through price increases were limited, prompting the sale by Telenor.

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