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OTE is set to approve merger with Cosmote November 12, 2007

Posted by grhomeboy in Telecoms.
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The Governing Board of telecom giant OTE was last night set to agree to acquiring all minority stakes of subsidiary Cosmote, Greece’s largest mobile phone network.

Sources suggested that OTE intends to proceed to a public offering of 26.25 per Cosmote share in cash and borrow up to 2.9 billion euros to fund the move. OTE wants to merge with Cosmote to help offset a decline in its customer base since the liberalization of the telecoms market in 2001 which has seen clients leaving traditional fixed-line for mobile telephony services. In view of this the Athens Exchange suspended trading in shares of both companies yesterday, pending a buyout announcement.

Earlier yesterday Cosmote reported its profits rose 1 percent to 275.9 million euros in the year’s first nine months, hampered by foreign exchange losses. But sales grew 38 percent on soaring customer numbers, a sign its regional growth policy is bearing fruit. While profit was flat, Cosmote’s subscribers rose by almost 3 million in the nine-month period, bringing its total customer base to 14.1 million, 42 percent higher than last year.

Such customer growth is one of the reasons OTE is keen to completely incorporate Cosmote, analysts said. “It makes sense for OTE, financially and strategically as Cosmote is its fastest growing segment,” said analyst Vangelis Karanikas, at HSBC Securities. “It has strong customer growth, strong cash flow and a strong dividend.”

OTE currently holds about 67 percent in Cosmote and has been considering raising its stake to 100 percent to offset falling fixed-line revenues from increased competition. OTE expects to lose about 200,000 clients by the end of the year as smaller competitors such as Internet provider Forthnet and mobile giant Vodafone enter the fixed-line market.

On Thursday OTE had received shareholder approval to amend its charter to issue new shares, a move analysts say could make it easier for OTE to make a bid for Cosmote via a share swap. The remaining 33 percent stake is worth about 2.6 billion euros at current market prices.

Cosmote shares trade about 19 times estimated 2007 earnings, at a slight premium to European peers such as France’s Bouygues with a multiple of 17, according to Reuters Estimates. The shares, up about 11 percent so far this year, have underperformed the broader Greek market, which has gained about 21 percent.

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