Telenor and Telia to be merged into a new company

Press release
Fornebu
15 minute read
The Norwegian Minister of Transport and Communications Odd Einar Dørum and the Swedish Minister of Industry Bjørn Rosengren on Wednesday signed a letter of intent to merge Telenor and Telia into a new company. The agreement is based on commercial principles, equality between the two countries and a precondition that the new company will be partially privatized and listed on the stock exchange.
The boards of Telenor and Telia support the agreement between the two ministers. "Both companies had come to a point in where it was natural to assess their future position in a market with steadily growing competition. Telenor and Telia have separately built up competencies that are in demand throughout much of the world. Now we will increase our customer focus further. Together we will have the size and experience necessary to further develop our position from a leading role in the Nordic countries into a strong international player," says Mr Arnfinn Hofstad, chairman of the board of Telenor, and Mr Jan Stenberg, chairman of the board of Telia, in a joint statement.

The proposal is to merge the operations of the two companies into a new company to be registered in Sweden, with the head office in Stockholm. When merged, the Swedish government will own 60% of the new company, while the Norwegian government will own 40%. The balance between the owners will be preserved by giving the parties equal voting rights, thereby ensuring equal influence. The merger is dependent on the approval of the national assemblies of the two countries and by the EU Commission.

According to the agreement between the owners, an IPO (initial public offering) of the new company is to take place as soon as possible. The owners have agreed to sell down to 33.4% each, while 33.2% will be offered for sale to new owners. The stock exchange listing will quote the value of the company, provide access to the international capital market and provide the flexibility necessary in an increasingly competitive industry.

The company's first chairman of the board will be Mr Jan Stenberg. The chairmanship will rotate between the two countries. The first chairman will serve until achievement of parity or the third anniversary of closing the merger, whichever comes first. Mr Tormod Hermansen, who is currently president and CEO of Telenor, will be the president and CEO. Telia's incoming president and CEO, Mr Jan-Åke Kark, will be the deputy chief executive. The name of the new company has not yet been decided.

"We will create a Nordic flagship in the telecommunications and IT industry. Telenor and Telia complement each other well. We are world-class contenders in important areas such as mobile, Internet and satellite services. By joining forces we have all the prerequisites for establishing ourselves as a major player in a globalized market for telecom and IT services," says Mr Hermansen. "By spending time on forging a joint understanding of the prerequisites of a successful merger we were able to come to an agreement this time."

The new company will be one of the leading telecommunications groups in Northern Europe, with annual revenues (based on the last 12 months at 3rd quarter 1998) of c. NOK 75 billion /SEK 79 billion and an operating profit of approx. NOK 12 billion/SEK 13 billion. The company will have approx. 51,000 employees. "The new company will be a leading operator in the Northern Europe market, but will still be small in comparison with the European and American companies we will be competing with in the future," says Mr Hermansen.
Industrial vision
The merger of Telenor and Telia is the realization of an industrial vision. Both Telenor and Telia are international leaders in the development and application of new technology. One of the new company's main goals will be to maintain its position here. By doing so it will continue to provide consumers in the two countries with some of the lowest telecom rates in Europe and help bolster the competitiveness of the business and industry. A merged company will have the critical mass and financial strength to meet the demands of particularly sophisticated and demanding customers during a time of sharply increasing competition.

"A new dynamic company will be a great advantage to customers. Our goal is to provide better service, early introduction of new services and continue to have some of the lowest telecom rates in the world. The new company will also be the best guarantee for maintaining good nation-wide services in both countries," says Mr Kark.
Considerable potential for synergy
The merger of the companies will provide substantial synergy gains as the result, inter alia, of coordinated purchasing, product development, system development and network operation, by utilizing economies of scale in the Nordic region and international investments.

Both companies are already working on measures to reduce the number of employees in the existing operations. The merger could make further reductions necessary. However, new demands for personnel in expanding areas will, in combination with normal staff turnover, greatly ease the transition. Both companies can also point to restructuring plans that were carried out where the negative consequences were limited.
The changing telecom industry
The markets in which Telenor and Telia operate are characterized by rapid change, sharp growth in demand, increasing competition and pressure on prices. The main driving force behind these developments is the rapid pace of technological development, convergence of industries and technologies, increasing internationalization and deregulation of the telecommunications markets. This has led to a globalization of the market for telecom-based services characterized by sharper competition and substantial structural change.

As a result of the convergence of telecommunications, IT and content distribution, traditional industry dividing lines are being erased. This will bring in a number of new players, not least globally-oriented companies, as new competitors for traditional telecoms. Competitive markets are growing across national borders where national monopolies previously existed. The merger of Telenor and Telia creates a Nordic corporation prepared to face this competition.

The new company will be a world leader in areas such as mobile communications, the Internet and satellite communications. Structural changes in the telecommunications market make it natural to pursue various forms of international alliances and partnerships. The purpose of this merger is to ensure access to markets, technology and complementary expertise. An important consideration will also be to reduce the company's own exposure to risk by working with others. The company will choose partners suited to the technology, market conditions and growth ambitions of the individual business areas.
Demanding customers
New products and services are being developed at a high tempo with the aid of new technology. Internet and mobile technology is leading the development and convergence of the telecommunications, IT, and content industries. The Nordic IT markets are advanced and attractive, with a population that quickly adopts new technology compared with the rest of the world. Sweden and Norway rank at the very top with respect to telephone density, mobile phone density and Internet access and use.

Consequently, global telecommunications and IT operators view the Nordic countries as an attractive market in which the customers are winners. Increasing global competition will continue to exert pressure on prices concurrently with the development of new services. Both Telenor and Telia have a decentralized organizational structure and operate nationwide in their respective countries. By building further on this the new company will make a positive contribution to regional development and be a major force in the creation of value and industrial and social development in Sweden and Norway.
Focus areas
The new company's overarching strategy is based on three main areas which will increase profitability, reap business-related advantages and produce increased added value for the owner:
- efficiency improvements in the core activity in Nordic telecommunications with a focus on distribution of a broad spectrum of technologies, services and products
- pursue opportunities in growth areas such as system integration, Internet services, mobile communications, cable TV and satellite communications based on the companies' leading competencies, and
- development of international activities based on existing operations, use of proprietary expertise and state-of-the art technology in core areas.

On this basis the company's ambition is to provide a long-term return that will make the company an attractive investment for its shareholders.
A new integrated company
All operations of Telenor and Telia will be integrated in the new company, which will be organized into business areas with full profit responsibility for products and markets. The company's international market development centre will be located in Oslo, while the management functions of the business areas will be divided between the two countries. R&D activities will be further developed in both countries.

One of the major challenges for service and technology companies in the future will be the ability to maintain and develop the expertise of their employees. An integrated company will be an attractive workplace based on Nordic traditions. In this industry the battle for expertise is more intense than the battle for capital. In the relatively small markets which, after all, Norway and Sweden represent, the new company will be able to offer national and international employment opportunities that are more exciting than what they can offer individually.

HSBC Investment Banking has been Telenors financial adviser, while JP Morgan has been Telias financial adviser.