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Friday, June 7, 2013

Softbank shows the way in quantifying telecom M&A synergies

As a follower of the TMTE sector firms, I happened to browse through the Japanese telco Softbank offering presentation for its 70% acquisition for the USA wireless telecom operator Sprint. It had interesting facts on the USA market like AT&T/Verizon duopoly wrt subscribers and EBITDA(67% subscribers and 82% EBITDA), low mobile data speeds of 1Mbps vs markets like UK/Australia, high postpaid base etc. The comparison of USA/UK/Japan with BRIC was an eye opener. Read the entire presentation at http://www.sec.gov/Archives/edgar/data/101830/000119312513228092/d541834d425.htm

However, what really caught my attention were these two graphs breaking down estimated deal synergies. Many talk about synergies but few walk the talk while publicly stating it.

What is really stunning is the estimated opex synergies of $2bn from 2014-2017, and then $3bn beyond. of this, they estimate nearly 40% from device procurement-really I would not have thought devices margins are so high.Another 49% rests from their knowledge transfer on network opex, churn and customer care-all performance drivers of telecom. IT is probably non incremental since vendors are quite efficient there unlike for other components.

For capex, purchasing synergies again constitute 42% of estimated synergies, while knowledge management of traffic and core building would give another 42%.

Here, they have built on their core strengths of networks and smart management while deriving the synergies. The next time a telecom CEO wants to defend that pricy acquisition, then such graphs are a good start,

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