Greece - agreement with DTAG

Athens backs D Telekom's Hellenic move

Deutsche Telekom and the Greek government yesterday unveiled an agreement under which the German telecommunications group will take management control of Hellenic Telecom, Greece's leading phone company.

Deutsche Telekom is buying a 25 per cent stake in Hellenic Telecom for €3.2bn ($4.9bn), in what is the second cross-border transaction in Europe in less than a year to involve what were former telecoms monopolies.

Spain's Telefónica last year bought a minority stake in Telecom Italia, Italy's leading phone company. France Telecom last month said it was considering the case for buying TeliaSonera, the Nordic telecoms company.

Under its shareholder agreement with the Greek government, Deutsche Telekom will nominate the chief executive of Hellenic, which is also known as OTE.

The Greek government will nominate OTE's chairman. Deutsche Telekom and the Greek government will each have five representatives on OTE's 10 member board.

The shareholder agreement still has to be approved by the Greek parliament and the European Commission.

René Obermann, Deutsche Telekom's chief executive, said: "With its highly motivated employees, OTE has built up a strong position in its Greek home market, as well as in southern and south-eastern Europe in recent years, and will therefore be an important partner in the Deutsche Telekom group." George Alogskoufis, Greece's finance minister, said: "This strategic agreement with one of Europe's biggest and most reliable operators opens a new page for OTE."

Deutsche Telekom announced in March that it was buying a 19.99 per stake in OTE at €26 per share from Marfin Investment Group, a private equity firm.

The deal was struck at a 36 per cent premium to the company's share price, and cost Deutsche Telekom €2.6bn.

Yesterday, Deutsche Telekom said it would buy a 3 per cent stake in OTE from the Greek government at €29 per share, which equates to €430m.

Deutsche Telekom is also due to buy a further 2 per cent of OTE stock on the open market, taking its stake in the company to 25 per cent plus one share. Based on OTE's current share price, Deutsche Telekom implied the 2 per cent stake would cost €220m.

The Greek government will, after its 3 per cent OTE stake sale to Deutsche Telekom, also own 25 per cent stake of the company.

Deutsche Telekom hopes to consolidate OTE's results in its 2008 accounts, and expects the transaction to have a positive impact on the German group's free cash flow.