Asia Holding
Description of and reasons for the acquisition
TeliaSonera on October 1, 2008, took a further step in executing its strategy to expand into new high-growth emerging markets by acquiring 51 percent of the shares and votes in TeliaSonera Asia Holding B.V. (Asia Holding), which owns controlling interests in:
- Spice Nepal Pvt. Ltd. (80 percent of the shares and votes), the second largest mobile operator in Nepal with around 1.6 million subscriptions and an estimated market share of approximately 41 percent as of August 2008.
- Applifone Co. Ltd. (100 percent of the shares and votes), the fourth largest mobile operator in Cambodia, with some 97,500 subscriptions and an estimated market share of approximately 3 percent as of August 2008.
Nepal and Cambodia have growing economies. Mobile penetration in Nepal, with a population of 28.4 million, is approximately 13 percent, while mobile penetration in Cambodia, with a population of 14.6 million, is approximately 21 percent. Goodwill is explained by expected increases in subscription numbers, a strong market position in Nepal, and synergies from subsequent restructuring of the operations. The results of the Asia Holding operations were included in the consolidated financial statements as of October 1, 2008.
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 sales | Net income |
|---|---|---|
| October 1–December 31, 2008 | 168 | 16 |
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 acquisition taken place at January 1, 2008.
|
|
January–December 2008 | ||
|---|---|---|---|
|
SEK in millions, except per share data |
TeliaSonera Group |
Asia Holding |
TeliaSonera Group pro forma |
| Net sales | 103,585 | 398 | 103,983 |
| Net income | 21,442 | -14 | 21,428 |
| Basic and diluted earnings per share (SEK) | 4.23 |
|
4.23 |
Cost of combination, goodwill and cash-flow effects
Details of the cost of combination and goodwill were as follows.
|
|
SEK in millions |
|---|---|
| Cost of combination |
|
| Cash purchase consideration | 3,328 |
| Transaction-related direct expenses | 54 |
| Total cost of combination | 3,382 |
| Less fair value of net assets acquired (as specified below) | -663 |
| Goodwill (allocated to business area Eurasia) | 2,719 |
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 adjustment.
The cash-flow effects were as follows.
|
|
SEK in millions |
|---|---|
| Total cost of the combination paid in cash | 3,382 |
| Less acquired cash and cash equivalents | -56 |
| Net cash outflow from the combination | 3,326 |
Assets acquired and liabilities assumed
Carrying values and fair values of assets acquired and liabilities assumed were as follows.
| SEK in millions | Carrying value |
Fair value adjustments |
Fair value |
|---|---|---|---|
| Goodwill | 5,227 | -5,227 | – |
| Licenses | 664 | – | 664 |
| Interconnect agreements | 881 | – | 881 |
| Customer relationships | 158 | – | 158 |
| Mobile networks | 427 | – | 427 |
| Financial non-current assets | 9 | – | 9 |
| Inventories, receivables, other current assets | 108 | – | 108 |
| Cash and cash equivalents | 56 | – | 56 |
| Total assets acquired | 7,530 | -5,227 | 2,303 |
| Minority interests | -18 | -637 | -655 |
| Deferred income tax liabilities | -398 | – | -398 |
| Other long-term liabilities | -189 | – | -189 |
| Short-term liabilities | -398 | – | -398 |
| Total liabilities assumed | -1,003 | -637 | -1,640 |
| Total fair value of net assets acquired | 6,527 | -5,864 | 663 |
There were no purchased in-process research and development assets acquired, nor any contingent liabilities assumed. For information on collateral pledged arising from the acquisition, see section “Collateral pledged” in Note 30 “Contingencies, Other Contractual Obligations and Litigation.”
Other business combinations in 2008
For a number of minor business combinations in 2008, the aggregate cost of combination was SEK 437 million (of which SEK 75 million paid prior to the business combination) and the net cash outflow SEK 353 million. Goodwill totaled SEK 450 million, of which SEK 335 million was allocated to business area Mobility Services, SEK 11 million to business area Broadband Services and SEK 104 million to reportable segment Other operations. The acquired businesses impacted consolidated net sales and net income, including the effects of fair value adjustments, by SEK 348 million and SEK -20 million, respectively.
Goodwill is explained by strengthened market positions. The total cost 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 adjustment.
MCT purchase price allocation finalized
In the third quarter of 2008, TeliaSonera finalized the purchase price allocation for MCT Corp., the U.S. company with shareholdings in mobile operators in Uzbekistan, Tajikistan and Afghanistan that was acquired in July 2007. A few adjustments were made and the net effect was a decrease in goodwill by SEK 193 million, primarily referring to higher net debt and lower deferred income tax liabilities.
Supplemental transaction in Azerbaijan
Relating to TeliaSonera's operations in Azerbaijan, TeliaSonera in 2008 granted the largest minority shareholder a put option. Should a deadlock regarding material decisions at the general assembly arise, the resolution supported by TeliaSonera will apply. In such circumstances, the put option gives the shareholder the right to sell its 42 percent holding at fair value to TeliaSonera. TeliaSonera accounted for the present value of the estimated option redemption amount as a provision (see section “Contingent consideration, etc.” in Note 24 “Other Provisions” for additional information) and derecognized the minority interest, which increased goodwill by SEK 3,608 million. Any future changes in the estimated redemption amount will be recognized in the income statement, while no minority interest will be recognized.