Modern Times Group (MTG) said it has agreed to combine its Nordic Entertainment and MTG Studios businesses with TDC Group to create a fully convergent media and communications provider, under a new brand. The new entity will reach all 10 million households in the Nordic region and will serve 2.8 million TV subscribers in Sweden, Denmark, Norway and Finland, through brands such as Viasat, Viaplay, Viafree, YouSee TV & Film, Blockbuster and Get Play. It will also provide fixed line and mobile telephony as well as broadband.
TDC Group will issue new shares and pay cash as consideration for the two MTG businesses, together called MTG Nordics. The yet-unnamed firm will have preliminary combined net sales of approximately DKK 30.6 billion (SEK 40.2 billion) and EBITDA of DKK 9.6 billion (SEK 12.6 billion) for the full year 2017.
MTG Nordics will transfer to TDC Group through a merger under Danish company law. TDC will issue 309 million new shares, equivalent to 28 percent of its outstanding shares. MTG shareholders will receive approximately 4.6 TDC shares for every MTG share held.
The deal should be completed in the second half of 2018 and is subject to regulatory approval. The AGM of MTG is expected to be held during Q2 2018 and the AGM of TDC Group is expected during Q1. Investment group Kinnevik owns 20.0 percent of the capital and 47.6 percent of the votes in MTG and has announced its support for the merger.
The combination implies a valuation of MTG Nordics of SEK 19.55 billion on a cash and debt-free basis, and corresponds to 11.1x FY2017 EBITDA. MTG will receive additional cash corresponding to the pro rata share of TDC Group’s 2017 dividend of DKK 1.05 per share, equivalent to approximately SEK 430 million.
The combination should yield annual run rate synergies of approximately DKK 600 million (SEK 790 million), of which DKK 400 million (SEK 530 million) are opex and capex-related, to be gradually realised over three years up to the end of 2021.
The new company will have combined leverage of approximately 2.6x net debt/EBITDA at year-end 2017. Reflecting this, TDC Group has announced its intention to pay out DKK 1.40 or approximately 50 percent of projected equity free cash flow for 2018, subject to closing.
The CEO of TDC Group, Pernille Erenbjerg, will become the CEO of the new combined company. MTG Executive Vice President Anders Jensen will become Deputy Group CEO. TDC Group chairman Pierre Danon will become chairman of the combined company. MTG CEO Jorgen Madsen Lindemann will take up one of two seats on the TDC board.
Following the merger, MTG will continue to be listed on Nasdaq Stockholm. MTG will then primarily comprise a portfolio of hyper-growth digital entertainment operations focused on e-sports (ESL, DreamHack and ESEA), online gaming (InnoGames and Kongregate) and digital video content (Zoomin.TV and Splay), as well as shareholdings in Nova Broadcasting Group in Bulgaria, BITKRAFT and Engage Digital Partners, and MTG’s own venture fund.
MTG's board of directors will propose the payment of an annual ordinary cash dividend of SEK 12.50 (SEK 12.00) per share to the AGM.
Jorgen Madsen Lindemann, MTG president and CEO, said the combined group will have an enhanced platform for the development of the Nordic Entertainment and MTG Studios businesses, which have performed strongly over the past year. MTG will then focus entirely on expanding its e-sports line-up, online gaming and digital video content.
The revenue synergies are expected to be come from reduced churn and "extended customer lifetime value" thanks to tailored product offerings catering to new demographics. Cost synergies are expected to come from the consolidation of TV and digital streaming services, integration of technology platforms, brand consolidation, and customer acquisition and retention cost efficiency gains.
Other cost synergies are expected from organisational streamlining of common functions. Capital expenditure synergies are expected within the product, technology and TV distribution areas.
The combination is expected to be accretive to TDC Group's earnings per share and equity free cash flow from the first year after completion, and accretion is expected to improve further as synergies are realised.