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Permira Selling Debitel to Freenet

FRANKFURT (Reuters) – German telecoms group Freenet (FNTG.DE: Quote, Profile, Research) has bought Debitel from private equity owner Permira [PERM.UL] for 1.63 billion euros ($2.54 billion) despite opposition from major shareholder United Internet (UTDI.DE: Quote, Profile, Research).

The deal catapults Freenet and Debitel to the number three spot among Germany's mobile phone operators with around 19 million combined customers and heralds a long-awaited consolidation in the overcrowded market.

Leading mobile phone provider T-Mobile (DTEGn.DE: Quote, Profile, Research) had 35 million customers in Germany and Vodafone (VOD.L: Quote, Profile, Research) had 34 million at the end of 2007.

Shares in Freenet initially fell nearly 11 percent but rebounded to trade up 1.2 percent at 11.40 euros by 0816 GMT, outpacing gains in Germany's technology index .

Freenet's supervisory board has approved the purchase, it said in a statement late on Sunday, adding that Freenet did not intend to pay a dividend in 2008 because of the acquisition.

Permira will receive 32 million new shares, or around 24.99 percent, in Freenet and a long-term 132.5 million euro interest-bearing loan note. On a cash-free basis, Debitel will be acquired with financial liabilities of 1.135 billion euros.

Permira has agreed to a lock-up period for 100 percent of the new shares until the end of the annual general meeting in June 2008 and for 60 percent of the new shares until the end of the annual general meeting 2009, in any event not longer than August 31, 2009, Freenet said.

“That gives us security,” a Freenet spokeswoman said, adding that the lock-up period ensured the financial investor would stay on board for some time. 

“We are primarily interested in having a stable shareholder structure,” the spokeswoman said.



The transaction is subject to anti-trust approval by the German cartel office but did not need approval from shareholders at Freenet's general meeting, the spokeswoman said.

United Internet, which holds 25 percent in Freenet with mobile phone company Drillisch (DRIG.DE: Quote, Profile, Research) through a holding company, vehemently opposed the deal and sought to scupper it at the last minute by raising its offer to buy all of Freenet.

In a letter obtained by Reuters on Sunday, United Internet indicated it would raise its bid to 16 euros per share after initially offering 12.80 euros per share and said it had won approval from other investors for the deal as well.

United Internet, Germany's leading alternative to Deutsche Telekom AG, wants to purchase all of Freenet and then spilt it up to keep Freenet's Internet access business and let Drillisch acquire the mobile telecoms part.

Last year Debitel paid 560 million euros for mobile provider Talkline, owned by Denmark's TDC (TDC.CO: Quote, Profile, Research). Talkline had 3.76 million customers, putting the price per customer at around 149 euros. That compares with around 125 euros Freenet is paying per Debitel customer.

Analysts at Landesbank Baden Wuerttemberg (LBBW) said the price Freenet paid was not cheap but justifiable in light of expected synergies, which according to their estimates could be up to 120 million euros annually. 

“The remaining interesting question is whether United Internet will abandon its efforts to acquire Freenet or will it continue to try and torpedo the merger between Freenet and Debitel,” LBBW said in note.

“However, there are not many means left to do so.”

United Internet and Drillisch were not immediately available for comment.

Hamburg-based Freenet was formed from the merger of mobile phone company mobilcom and its Internet arm Freenet in March 2007 but has put its DSL business on the block to focus on its mobile business.

Freenet said Arma Partners LLP and Deutsche Bank had advised Freenet on the deal and UBS had advised Debitel.

(Reporting by Nicola Leske; Editing by Andrew Hurst)