(Reuters) – TDC (TDC.CO), Denmark’s biggest telecoms network operator, is weighing a bid for Swedish cable firm Com Hem (COMH.ST), as it seeks to expand across the Nordic region, sources familiar with the situation told Reuters.
TDC is sounding out banks to fund a deal that could value the cable operator at more than 11.7 billion Swedish crowns ($1.56 billion) based on its current market price, the sources said.
Talks to combine the two companies started earlier this year, before Com Hem went public in June, and have been on and off since then, two of the sources said, cautioning that discussions could still fall through.
European private equity firm BC Partners [BCPRT.UL], which acquired Com Hem in 2011 from Carlyle Group (CG.O) and Providence Equity Partners, has retained a 47.6 percent stake in the business and is hoping to recoup part of its investment through a deal with TDC, the sources said.
Representatives at TDC and BC Partners declined to comment as did a spokesman for Com Hem.
Shares in Com Hem were up 9 percent at 62.25 crowns by 12:22 GMT (7:22 EST), after trading earlier in the session below June’s initial public offer price of 58 crowns.
Almost 40 percent of Swedish households are connected to Com Hem’s network, and it has more than 600,000 digital TV customers.
But after a rocky few months on the Swedish stock market, Com Hem could favor a tie-up with TDC, which also controls Norway’s second-largest cable operator Get, banking sources said.
However some said TDC might find it difficult to digest another deal so soon after buying Get in September, for $2.2 billion.
“TDC is not a natural consolidator. Get was already a big acquisition for them,” said one of the bankers.
Com Hem was valued at 8.9 times its 2015 earnings before interest, tax, depreciation and amortization at the time of its listing in June. The shares now trade on an enterprise value to EBITDA multiple of 8.5 times.
The European cable sector trades on an enterprise value to 2014 EBITDA multiple of 7.3 times, according to Thomson Reuters data.
THE END GAME
A combination of Com Hem and Get would make strategic sense, although there could be some antitrust concerns, one of the sources said.
A move by TDC to do such a deal could prompt a reaction from TDC’s Nordic rivals, particularly Sweden’s TeliaSonera (TLSN.ST) and Tele 2, making TDC itself a possible takeover target, several sources said.
“TDC is ultimately a seller rather than a buyer,” said one of the sources.
TeliaSonera has looked at ways to expand in Denmark and on Wednesday it announced a 50/50 joint venture deal with Telenor to merge their respective Danish operations.
Tele 2, which is in the process of selling its Norwegian business to TeliaSonera, could also consider an approach for TDC, the sources said.
TeliaSonera and Tele 2 declined to comment.