Deutsche Telekom buys GTS Central Europe
Deutsche Telekom AG, the German telecommunications company that owns, among other properties, T-Mobile, recently announced that it would buy GTS Central Europe for €546 million ($731 million).
That amount, according to Commerzbank AG analyst Heike Pauls, "is not a bargain but still an acceptable price." Bloomberg Businessweek noted that it valued GTS central Europe at 6.3 times earnings—not including interest, taxes, depreciation or amortization.
GTS Central Europe is based in Warsaw, Poland and focuses on business telecommunications, providing service to major companies like Coca-Cola Co. and General Motors Co. According to early reports by Gigaom, the technology acquisition will help Deutsche Telekom offer fixed-line infrastructure in Poland and the Czech Republic, while also taking advantage of the company's data center capabilities.
"The acquisition makes perfect sense within Deutsche Telekom's strategy of repositioning in eastern Europe for when the economic recovery begins, as well as growing in integrated offerings where it only has mobile-phone services," Pauls told Businessweek.
In fact, Deutsche Telekom appears in dire need of improving its business prospects in eastern Europe. Businessweek reported last week that its third-quarter earnings (before interest, taxes, depreciation and amortization) fell by 27 percent in the Czech Republic and 21 percent in Croatia.
"We are investing against the trend," Timotheus Hoettges, chief financial officer at Deutsche Telekom, said in a statement. "GTS is a further element for developing our integrated market position comprising mobile and fixed-line network services."
News sources cite price competition as the primary reason why Deutsche Telekom is struggling in Eastern Europe. By improving its service offerings, the company may be able to reverse the trend.