United Internet to buy Drillisch for €2.8bn

United Internet has agreed to buy Drillisch and merge the telecommunications provider with its 1&1 Telecommuniction subsidiary.

United plans to pay €50 per share, which values Drillisch at around €2.8bn.

The combination of the two businesses is intended to create "a strong fourth player in the German telecommunications market" alongside the three major full-service providers Deutsche Telekom, Vodafone and Telefónica.

United Internet pointed out that 1&1 Telecommunication and Drillisch together have more than 12m customer contracts and had combined sales of more than €3.2bn in 2016.

An annual synergies volume of €150m is expected as early as 2020, rising to €250m annually by 2025. Synergies will result in particular through the joint purchasing of hardware and services, more efficient use of network capacity available to Drillisch, the expansion of the 1&1 product portfolio to include future technologies, and the availability of a larger product portfolio in Drillisch’s stores. To achieve these synergies, the companies expect one-off implementation costs of around €50m at the combined business level.

Olivetree Financial said: "This is a transaction based upon sound strategic merit, it is more an exercise in United Internet future-proofing its model rather than a real desire to buy in the minorities of Drillisch.

"Although telecoms markets are always complicated to assess, the relevant sizes of these businesses are important to remember, as are the complimentary nature of the assets they both own. Granted this will help the ongoing notion of German market repair, but NewCo’s ability to influence the market in a meaningful fashion is limited at best. The timeline here is set by the complicated multi-stage process of the transaction, rather than the antitrust story. The bottom line here is more rooted in the strategic benefits to United Internet than anything complex from an M&A perspective."

At 0935 BST, United Internet shares were up 9.1% to €46.64 while Drillisch was up 8.6% to €52.71.