Deutsche Telekom, Vodafone Chased by East European Tycoon

(Bloomberg) -- To get a picture of how PPF Group NV’s arrival might shake up the telecommunications markets in Hungary and the Balkans, look at what it did in the Czech Republic.

The private financial group of Petr Kellner, the richest man in the European Union’s east with a $12.6 billion fortune, will lock horns with industry heavyweights such as Deutsche Telekom AG, Vodafone Group Plc and Telekom Austria AG. While a relative newcomer in the industry, local analysts and officials said it should bring a penchant for experimentation, a war chest to invest while controlling costs and an understanding of the former communist markets.

PPF this week agreed to buy Telenor ASA’s mobile units in Hungary, Bulgaria, Serbia and Montenegro for 2.8 billion euros ($3.45 billion), ending months of speculation about the fate of the Norwegian phone company’s holdings in eastern Europe. The Kellner outfit’s first foray into the phone and media industry was almost five years ago, when it scooped up the largest Czech phone company from Spain’s Telefonica SA for about $3.4 billion. It’s since boosted earnings, pushing the unit’s shares up 400 percent.

“PPF will likely be a more aggressive and nimble investor than Telenor and will certainly try to get some edge over its competitors by optimizing operations or introducing new services,” said Milan Vanicek, an analyst at J&T Banka AS in Prague, who has rated O2 Czech since 2005. “The arrival of this financial predator could boost competition and shake things up.”

Deutsche Telekom, Vodafone Chased by East European Tycoon

PPF’s approach stems from its origins as a company focused on investment management, insurance and real estate. It has since branched out to industries including biotechnology and is now doubling down on a bet on telecommunications.

It can build on its experience with O2 Czech Republic AS, the former state phone company that has long dominated in the country and competes mainly in the mobile market with T-Mobile Czech Republic AS and Vodafone. After PPF took over, it transferred the infrastructure into a separate company to ease regulatory hurdles and boost profits, while cutting the workforce and operating costs.

PPF also drove O2 CR’s expansion into services such as gadget insurance and television programming. The latter includes exclusive rights to all Champions League soccer games in the country for the next three years. The combined net income of the two units in 2017 was more than double the still-integrated company’s earnings in 2014. Total revenue has jumped 31 percent in the period.

Deutsche Telekom, Vodafone Chased by East European Tycoon

PPF is “fulfilling our long-held goal to become a mid-sized European operator and to use our experience to strengthen our market position,” Ladislav Bartonicek, the company shareholder responsible for telecommunications assets, said in a statement. O2 shares traded little changed at 282 koruna as of 12:08 p.m. in Prague, after a two-day decline.

The Telenor deal will give PPF 9 million more users, 3,500 new employees and about $1.5 billion in additional annual revenue, based on 2017 results, according to its statement announcing the purchase.

Still, the new markets are dominated by more experienced rivals. Investors expecting an easy repeat of PPF’s success in the Czech Republic should be cautious, said Erhan Gurses, an analyst at Bloomberg Intelligence. Deutsche Telekom, for instance, hired a new chief executive to drive growth at its eastern European units, in part by offering customers products that combine mobile and fixed-line services, Gurses said.

Hungary, Bulgaria

PPF’s largest new market is in Hungary, where it will go head to head against Magyar Telekom Nyrt., controlled by Deutsche Telekom, and Vodafone. A company owned by Lorinc Meszaros, an oligarch ally of Prime Minister Viktor Orban, has reportedly approached PPF about buying the local assets once the Telenor deal is closed. PPF spokeswoman Zuzana Migdalova declined to comment on what she called “market rumors.”

Even if talks have begun, said Norbert Cinkotai, an analyst and KBC Groep NV’s Hungarian brokerage, “there’s is good chance that PPF keeps the Hungarian holdings as they may look to become a major regional player.”

In Bulgaria, PPF will face off with formerly state-owned phone Vivacom and Telekom Austria on the mobile market. The purchase also adds to PPF’s media holdings as it agreed to buy Nova Broadcasting Group JSC, the biggest media group in the Balkan country, from Sweden’s Modern Times Group MTG AB. Regulatory approval is expected sometime in the first half. Vivacom declined to comment about the effect PPF may have on its business.

Serbia Challenge

The Serbian market, dominated by state-owned Telekom Srbija, also has Telekom Austria’s Vip Mobile doo., which is hoping to win customers amid the reshuffle of the local market, said Chief Executive Officer Dejan Turk. Telekom Srbija CEO Predrag Culibrk declined to comment on Telenor’s decision.

Serbian Trade and Telecommunications Minister Rasim Ljajic welcomed the shakeup, saying he expects new investments from PPF to create a more competitive market in the largest former Yugoslav republic. Telenor entered Serbia in 2006 with the acquisition of a mobile provider, later adding fixed-phone, cable and banking services.

“It’s a good signal for Serbia as an attractive investment destination,” according to Ljajic’s statement on the ministry’s website. “I don’t expect drastic changes in terms of employees” at Telenor, he said. “I’m sure there will be new investments.”

PPF will probably use its experience with running O2 Czech to revive revenue at the newly acquired assets and may achieve capital-expenditure savings and know-how sharing between its telecommunications units, according to analyst Petr Bartek at Erste Group Bank AG’s Prague-based unit.

“It will be much more important whether PPF starts any reorganization of the group and what role would O2 Czech Republic play then,” he said by email.

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