Royal KPN NV, the Netherlands’ largest telephone company, has revealed it will merge its international wholesale voice business with communications service provider iBasis Inc.
KPN is effectively gaining control of iBasis by merging in its KPN Global Carrier Services with the Burlington, Massachusetts-based company. KPN will pay $55m for a 51% stake in the combined entity, while iBasis shareholders will receive a cash dividend of $113m when the deal closes, expected by the end of 2006. The deal is subject to customary closing conditions including regulatory approvals and the approval of iBasis shareholders.
We are very pleased to merge our international wholesale voice business into iBasis, given its leadership in VoIP and its strong growth profile, said KPN CEO Ad Scheepbouwer. This transaction is an important step for KPN that will clearly contribute to the realization of our existing All IP strategy and our transformation into an All IP company.
The two companies said the deal would establish iBasis as one of the five largest international wholesale voice carriers in the world, with combined 2005 revenues of more than $1.1bn and more than 15 billion combined minutes in 2005. For 2006, the new company is expected to have revenue of $1.2bn to $1.25bn, and earnings before interest, taxes, depreciation, and amortization of $45m to $50m, the companies said during a press conference. It will also have virtually no debt.
iBasis recently regained its Nasdaq listing, and the new company will continue trading on the exchange under the symbol IBAS. The chief executive of iBasis, Ofer Gneezy, will retain his role with the new combined entity, while KPN will eventually appoint four members to a seven-member board.
The two companies said that geographically their respective networks are of a good fit with very little overlap. KPN’s wholesale voice network is mostly in Europe and Asia, whereas iBasis has a footprint mostly in the Americas and Asia. They stressed the importance of scale that is needed to negotiate lower termination costs, and said they expect annual cost synergies of $10m per year in the medium term once back-office functions such as IT are merged.
They also said the deal combines two of the fastest growing segments of global telecommunications: mobile services and consumer VoIP. KPN Global Carrier Services brings an established business in mobile services, including a reliable product portfolio and relationships with more than 100 mobile operators, as well as international traffic from KPN’s Dutch, German, and Belgian operations.
iBasis brings a global VoIP network comprising over 1,000 points of presence in more than 100 countries and interconnections with more than 400 carriers worldwide. Most of the traffic generated by SkypeOut is carried over the iBasis network.
The deal follows a similar deal last August when the Belgian telecoms carrier Belgacom SA and Swiss incumbent Swisscom AG completed a deal to combine their fixed-line international carrier divisions into a single joint venture. The venture is known as Belgacom International Carrier Services, and is 72% controlled by Belgacom, while Swisscom controls 28%.
Shares in iBasis rose 4.65% to $8.55 on Nasdaq on Wednesday afternoon, while KPN’s shares on the New York Stock Exchange slipped 0.09% to $11.05.