With the acquisition of Hungary’s largest alternative telecom in its sights, the American Stock Exchange-listed Hungarian Telephone and Cable Corp. (HTCC) is sticking to its promise of building its local entity in a bid to compete with incumbent Matáv Rt. “We are positioning ourselves to achieve our goal of becoming the consolidator of the Hungarian alternative telecommunications market, so that we can exploit these opportunities beyond our current markets,” said Ole Bertram, president and CEO of HTCC, whose locally registered operation is Hungarotel Rt.
Bertram added that with the nationwide fiber optic network of PanTel Rt, the alternative telecom it will soon acquire, HTCC will have the infrastructure to effectively compete throughout Hungary, and thereby restore growth to its business.
Earlier this month, HTCC announced that it had reached and signed a framework agreement with Royal KPN NV, pursuant to which HTCC will ultimately purchase PanTel for cash.
HTCC also said that it will assume PanTel’s existing debt, which amounts to approximately €60 million. In 2003, PanTel had sales of Ft 25.9 billion (€101 million), and EBITDA of Ft 4.1 billion.
HTCC posted net income of $7.6 million for Q1 2004, while net telephone service revenues increased 3% to $15.5 million for the three months ending March 31, compared to the same period last year.
HTCC has itself been mentioned as a potential future target of financial investors the AIG Emerging Europe Infrastructure Fund LP (EEIF) and GMT Communications Partners, the owners of alternative telecom Invitel Rt, formerly Vivendi Telecom Hungary. AIG and GMT bought out Vivendi Universal’s Hungarian telecom operations at the beginning of last year.
The financial investors have also been rumored to be interested in PanTel.
Craig Butcher, director of AIG Global Investment (CEE), which advises the EEIF fund, welcomed HTCC’s upcoming acquisition of PanTel.
“It’s important that the market does consolidate. We therefore view this as a positive step, though it’s still unclear as to what conditions remain to be satisfied before the deal is completed,” Butcher said.
He added that AIG will keep a close eye on how the companies manage the post-merger integration, but declined to comment on whether Invitel would cooperate with the newly merged company in terms of offering services.
Bertram has said that HTCC is intent on growing in order to compete with Matáv, either through acquisitions or strategic alliances.
As for AIG’s own investment plans, Butcher said that AIG is continuing to monitor market developments.
Last October, a group of financial investors including Deutsche Bank and the U.K.’s Ashmore Group bought a 20% stake in HTCC for around $30 million from exiting shareholder Postabank Rt.
“The presence of these new institutional investors increases the possibility of further funding for the company’s plans of consolidating the Hungarian telecommunications market,” said Bertram.
He added that the institutional investors envisage HTCC as a long-term investment, and plan possible other investments in the region.
Szabolcs Szikszai, an analyst at Takarékbank Rt, said that it remains to be seen whether HTCC will have the financial clout to carry out further consolidation, such as prizing Invitel away from AIG and GMT.
He added that HTCC is performing very well, with a higher EBITDA ratio than Matáv, and is wise to invest its money. He said he views its buyout of PanTel as healthy for the consumer.
“This is both positive and necessary,” said Szikszai. “Local and national networks should link up to realize economies of scale. PanTel has the potential to provide local telephony and the combination should improve competition.”
Ashmore Investment Management, a specialist emerging markets fund manager, formerly part of the Australia and New Zealand Banking Group, owns 15% of HTCC. It manages in excess of $6 billion of assets, with a further $3.2 billion of assets under administration in its Guernsey company, International Administration (Guernsey) Ltd.
Citizens Communications Company, based in Stamford, Connecticut, owns 19% of HTCC, while Copenhagen-based TDC A/S, formerly known as Tele Danmark A/S, owns 31%.
The remaining 35% of HTCC’s outstanding common stock is publicly held and traded on the American Stock Exchange.
by Robert Smyth
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24.05.2004