Market Insight

Stofa cancels Canal Digital acquisition

July 26, 2011

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Danish cable operator Stofa has cancelled its acquisition of Canal Digital's Danish cable operations from Telenor. The sale, first announced in January 2011 and expected to be completed by end Q1 2011, was subject to regulatory approval. Stofa's private equity (PE) owner Ratos announced yesterday that it was pulling the plug as it believed that the possibility of receiving an approval was 'low'.

The Telenor-Ratos deal was referred to the Danish Competition Authority earlier this year, which initiated an investigation to examine the deal's impact on the relevant markets. A draft decision was submitted by the authority to the stakeholders on 12 July, and a final decision was to be have been made by the Competition Council on 8 August.

The Competition Council will now not be deciding on the case, given that Stofa and Telenor have withdrawn the deal.

Although Ratos's announcement did not divulge the contents of the Competition Authority draft decision, it is understood that the market analysis carried out by the authority focused specifically on the impact on competition and resultant consumer level prices of services in the antenna/housing association segment. Both Stofa and Canal Digital are major operators in this three-player space, the other being TDC's YouSee. The Stofa-Canal Digital deal would have resulted in over 633,000 antenna association households previously serviced by Canal Digital being a part of Stofa, giving it a much larger presence in the market, and subsequently greater leverage during negotiations with associations.

A deal that was seen as the beginning of Telenor's exit from the cable business, now stands annulled. The question now arises as to what Telenor will choose to do with its Danish operations. Given that the deal was cancelled prior to the Competition Council making a judgment, an attempt to sell the assets to Ratos some time in the future cannot be ruled out. However, whether Telenor would want to hold on to its Danish assets till then is another matter altogether.

A sale to competitor YouSee is also a distant possibility given the regulator's current stance. A sale to another PE is perhaps something that will be considered. However, it would be surprising if a deal can be concluded at the previous valuation (Dkr100m; €13.4m), given that Stofa's owners would have placed a premium based on the synergies and enhanced market share it created in the combined business entity.



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