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Millicom to Merge Colombian Subsidiary with Local Landline Operator

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Millicom and Colombia's Empresas P blicas de Medell n (EPM) have agreed to merge their local mobile, cable and landline networks to create a "digital lifestyle company", or what the rest of us call, "a phone company".

The combination will be of the two companies local operating subsidiaries, UNE and Tigo. Initial talks started in February.

The proposed transaction implies an enterprise valuation of Tigo Colombia (pre deal) equal to approximately $1.3 billion, and an enterprise valuation of UNE (pre deal and including UNE affiliates) of approximately $2.1 billion.

On a pro forma basis, in 2012 the combined company would have had revenues of just over USD2 billion and EBITDA of US$531million. Free Cash flow generation in 2012 would have been USD185 million.

EPM would hold a majority equity interest in the combined company, owning 50% and 1 share of the outstanding shares; with Millicom owning the remaining outstanding shares. However, Millicom would assume operational and administrative control and full consolidation of the company's debts, which will be in the region of USD1.1 billion.

Millicom and EPM have identified cost and capex synergies equivalent to a net present value of over $600 million (after integration costs). The costs and capex savings are expected to be essentially derived from network and IT integration and procurement efficiencies. The integration costs are expected to amount to $105 million in the first three years following closing, of which $45 million in the first year.

Tigo is the leading provider of mobile telephony in the Atlantic Coast region where 2.4 million people live, while UNE is the provider of choice in the Northwest region, where 6.3 million people live.

The integrated company is therefore expected to have significant opportunities to cross-sell products and services in each other's areas of strength, without undermining its own businesses.

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Tags: millicom  une  Colombia