Telenor buys majority stake in Finland's DNA for $1.7 billion

By Gwladys Fouche

OSLO (Reuters) - Telenor will enter Finland's telecoms market after agreeing to buy a controlling stake in the country's third-largest mobile firm DNA, completing its presence in the Nordic region.

The 1.5 billion-euro ($1.7 billion) deal for a 54 percent stake in DNA marks a further step in the Norwegian company's drive to focus on its main markets in the Nordics and Asia.

Telenor had expanded into other emerging markets, but has recently been selling out of its smaller businesses, exiting India and central Europe and gradually divesting its stake in Veon, formerly known as Vimpelcom.

With DNA, Telenor's revenues from the Nordic region will rise to 44 percent of the total from 39 percent, at a time when Swedish rivals Telia and Tele2 are also expanding, Citi wrote in a note to clients.

Telenor, which did not speak to DNA before striking a deal with two of its major shareholders, said on Tuesday it was paying 20.9 euros per DNA share, a 7.4 percent premium to Monday's closing price.

Completing the stake purchase will trigger a mandatory offer by Telenor for the rest of DNA's shares, valuing DNA at 2.78 billion euros, according to Reuters' calculations. Telenor said it planned to maintain a separate listing for DNA shares.

"With the transaction, Telenor gets a strong position across fixed and mobile in an attractive and growing telecom market, and further strengthens its position in the Nordic region," the company said.

'NOT VERY SURPRISED'

Telenor Chief Executive Sigve Brekke said he met DNA's CEO, finance chief and chairman in Helsinki soon after the deal was announced.

"They were not very surprised," he told Reuters in a phone interview. "There had been expectations that, sooner or later, the two main shareholders may want to exit."

Telenor is buying a 28.3 percent stake from Finda Telecoms Oy and 25.8 percent from PHP Holding Oy.

When asked whether he would keep DNA CEO Jukka Leinonen at the helm, Brekke said: "the DNA management is very capable and has done a very good job".

Telenor shares fell as much as 2.3 percent at the market open, before recovering losses to stand 0.3 percent lower at 1150 GMT, while DNA's shares rose 8.3 percent to 21.08 euros, just ahead of the offer price.

DNA Chairman Pertti Korhonen said he would await the release of Telenor's formal offer to shareholders before commenting on the value of the bid.

The deal will add DNA's 2.9 million customers to Telenor's 174 million users across Scandinavia and Asian markets such as Pakistan, Thailand and Myanmar, with the company saying it expected to make cost savings, or synergies, from the purchase.

"We believe this is a good deal from Telenor's perspective," JP Morgan said in a note to clients, adding it made sense by expanding Telenor's pan-Nordic footprint.

DNA launched in 2001 and in its early stages was owned by 40 local telecoms operators. Its shares listed on the Helsinki stock market in 2016 at 10.10 euros apiece.

With Telenor as its top shareholder, DNA will become more competitive in Finland's corporate telecoms market where it has lagged bigger rivals Elisa and Telia, Citi said.

The deal is expected to close in the third quarter, Telenor said. While the company plans to continue buying back shares, its ability to do so in the longer term will likely be impaired by the debt incurred via the DNA deal, Citi wrote.

Barclays advised Telenor on the transaction.

($1 = 0.8866 euros)

(Additional reporting by Anne Kauranen in Helsinki and Tarmo Virki in Tallinn; Editing by Terje Solsvik, Kirsten Donovan and Mark Potter)