Acquisitions of Cygate, debitel Danmark and MCT
Description of and reasons for the acquisitions
Cygate
On November 16, 2006, TeliaSonera announced an agreement to acquire a majority stake in Cygate Group AB. After obtaining relevant regulatory approval, TeliaSonera acquired 98.76 percent of the shares on January 26, 2007. As activities to purchase the remaining shares were initiated promptly, 100 percent of the results of the Cygate operations were included in the consolidated financial statements as of February 1, 2007.
Cygate is a leading supplier of secure and managed IP network solutions as well as system integration in the Nordic market. The acquisition underlines TeliaSonera's strategic direction to strengthen its position within managed services.
The transaction is a strategic acquisition that gives TeliaSonera broader competence within business solution sales, technology and project management. Cygate provides solutions within networking, security and IP telephony and services within support, maintenance and IT management. Cygate, which has strong brand recognition in the market, will operate as a separate business within TeliaSonera.
debitel Danmark
On January 31, 2007, TeliaSonera signed a share purchase agreement to acquire 100 percent of the Danish service provider debitel Danmark A/S. After obtaining relevant regulatory approval, closing took place on April 11, 2007. The acquisition included debitel's 50 percent owned joint venture DLG-debitel I/S operating under the brand DLG Tele. The results of the operations were included in the consolidated financial statements as of April 1, 2007. Following a new shareholders' agreement, DLG Tele became a controlled entity as of July 1, 2007.
In addition to the stand-alone valuation of debitel, the transaction is based on transferring debitel's traffic from other mobile networks into Telia Denmark's mobile network.
The transaction strengthens TeliaSonera's position in the Danish mobile market. At December 31, 2006, debitel and DLG Tele had approximately 300,000 mobile subscriptions. debitel will continue to operate as a service provider under a separate brand on the Danish market.
MCT
On July 16, 2007, TeliaSonera acquired 100 percent of the shares in MCT Corp, a U.S. based company with shareholdings in four Eurasian GSM operators. The MCT group of companies includes:
- OOO Coscom, which is the third largest mobile operator in Uzbekistan with 393,000 subscriptions and a market share of approximately 11 percent as of May 2007. MCT had a 99.97 percent interest in Coscom.
- ZAO Indigo Tadzhikistan and ZAO Somoncom, which combined is the second largest mobile operation in Tajikistan with 377,000 subscriptions and a market share of approximately 27 percent as of May 2007. MCT had a 60.0 percent interest in Indigo Tadzhikistan and a 59.4 percent interest in Somoncom.
- Telecom Development Company Afghanistan Ltd. (Roshan), which is the largest mobile operator in Afghanistan, with 1,300,000 subscriptions and a market share of approximately 50 percent as of May 2007. MCT had a 12.25 percent interest in Roshan.
The transaction underlines TeliaSonera's strategy to be the leading Eurasian mobile operator and strengthens the commitment and presence in the region. Uzbekistan, Tajikistan and Afghanistan have a combined population of approximately 67 million, growing economies and relatively low mobile penetration levels. Goodwill is explained by strong market positions, potential increases in customer numbers and synergies from the restructuring of the operations.
The results of the operations in Uzbekistan and Tajikistan were included in the consolidated financial statements as of July 1, 2007. The operation in Afghanistan is reported as a financial investment, i.e. the results will affect "Other financial items" in the income statement.
Financial effects
The acquired businesses impacted consolidated net sales and net income, including the effects of fair value adjustments, as follows.
SEK in millions

Net salesNet income




Cygate (February 1 - December 31, 2007)

732-52


debitel Danmark (April 1 - December 31, 2007)

770-61




MCT (July 1 - December 31, 2007)

31711




Total

1,819-102




The following table sets forth the TeliaSonera Group pro forma net sales, net income and earnings per share, including the effects of fair value adjustments, had the acquisitions taken place at January 1, 2007.
January-December, 2007



SEK in millions, except per share dataTeliaSonera GroupCygatedebitel DanmarkMCTTeliaSonera Group pro forma

Pro forma net sales96,3446218522796,818



Pro forma net income20,298-2-13-5120,232



Pro forma basic and diluted earnings per share (SEK)3.94


3.92












Cost of combination, goodwill and cash-flow effects
Details of the cost of combination and goodwill were as follows.
SEK in millions
Cygatedebitel DanmarkMCT




Cost of combination








Cash purchase consideration
6731,0161,728




Transaction-related direct expenses
7456




Total cost of combination
6801,0201,784




Less fair value of net assets acquired (as specified below)
-417-335-287




Goodwill
2636851,497




Allocated to:








Business area Mobility Services
-685-




Business area Integrated Enterprise Services
263--




Business area Eurasia
--1,497













The total costs of combination and fair values have been determined provisionally as they are based on preliminary appraisals and subject to confirmation of certain facts. Thus, the purchase price accounting is subject to refinement.
The cash-flow effects were as follows.
SEK in millions
Cygatedebitel DanmarkMCT




Total cost of the combination paid in cash
6801,0201,784




Repayment of certain borrowings
-32396




Less acquired cash and cash equivalents
-142-73-32




Net cash outflow from the combination
5381,2701,848




Assets acquired and liabilities assumed
Carrying values and fair values of assets acquired and liabilities assumed were as follows.
Cygatedebitel DanmarkMCT
SEK in millionsCarrying valueFair value adjustmentsFair valueCarrying valueFair value adjustmentsFair valueCarrying valueFair value adjustmentsFair value
Goodwill38-38-------
Trade names-9090------
Licenses-------306306
Customer relationships-190190-143143-106106
Interconnect agreements-------276276
Partner agreements with suppliers-100100------
Other intangible assets---11-1116-16
Property, plant and equipment11-1111-11590-590
Investments in joint ventures---23360383---
Investments in other equity holdings------1193194
Other financial non-current assets7-762-62---
Inventories, receivables and other current assets155-155143-143125-125
Cash and cash equivalents142-14273-7332-32
Total assets acquired3533426953235038267648811,645
Minority interests-------73-145-218
Deferred income tax liabilities-3-106-109--36-36-10-598-608
Other long-term liabilities-7--7----117--117
Short-term liabilities-162--162-455--455-415--415
Total liabilities assumed-172-106-278-455-36-491-615-743-1,358
Total fair value of net assets acquired181236417-132467335149138287
There were no purchased in-process research and development assets acquired, nor any contingent liabilities assumed. Collateral pledged arising from the acquisition was as follows.
SEK in millions
Cygatedebitel DanmarkMCT




Chattel mortgages
16--




Real estate mortgages
--2




Other business combinations in 2007
For minor business combinations in 2007, the aggregate cost of acquisition was SEK 154 million and the net cash outflow SEK 135 million. Goodwill totaled SEK 113 million, of which SEK 50 million was allocated to business area Mobility Services, SEK 51 million to business area Integrated Enterprise Services and SEK 12 million to reportable segment Other operations.
Xfera purchase price allocation finalized
In the second quarter of 2007, the purchase price allocation for Xfera Móviles S.A., acquired in June 2006, was finalized. A few adjustments were made and the net effect was an increase in goodwill of SEK 176 million, primarily relating to deferred spectrum fees that had already been recognized as a part of the fair value of Xfera's 3G license.
Supplemental transaction in Uzbekistan
In December 2007, TeliaSonera supplemented its acquisition of OOO Coscom (see section "MCT" above) by introducing a local partner from whom TeliaSonera acquired a 3G license, frequencies and number blocks in Uzbekistan in exchange for USD 30 million net in cash and a 26 percent interest in TeliaSonera Uzbek Telecom Holding B.V. (Uzbek Holding), the parent company of Coscom. In connection with the transaction, the partner was granted a put option giving the partner the right to sell its 26 percent interest in Uzbek Holding to TeliaSonera after December 31, 2009. Minority interest was derecognized and a provision for the estimated redemption amount of the put option was recognized. The transaction increased goodwill by an additional SEK 1,717 million.