KPN has sold its German unit E-Plus to Spanish telco Telefónica (NYSE: TEF) for 5.0bn euros (US$6.6bn) in cash and a 17.6% stake in the new company formed from the combination of E-Plus and Telefónica's German unit Telefónica Deutschland, KPN said in a release.
E-Plus is estimated to have a market share of around 15% in Germany, and saw revenues fall by 4.6% to 803mn euros in Q2, KPN said in a results release.
Meanwhile, Telefónica's German unit saw revenues down 2.3% to 1.23bn euros in Q1, the company said in a results release.
The company resulting from the combination of Telefónica Deutchland and E-Plus is expected to have 43mn mobile customers and combined annual revenues of 8.6bn euros, Telefónica said in a release.
The company has identified synergies of between 5.0-5.5bn euros net of integration costs as a result of the transaction. The deal is expected to be closed in 1Q14, and is subject to regulatory approval.
The decision to acquire new operations in Germany may come as a surprise to many industry watchers, as Telefónica has followed an aggressive asset sale strategy in recent months in efforts to reduce its large net debt.
The company reiterated its commitment to reduce net debt to 47.0bn euros by the end of this year, from 51.8bn euros at the end of Q1.
The question remains as to where Telefónica may look for divestment in order to hit its aggressive net debt targets following the announcement of plans to acquire new operations in Germany.
Initial market reactions to the E-Plus acquisition have been positive. Telefónica's share price is up 2.3% at the time of publishing compared to the July 22 closing price.