TDC preps bumper US$7bn dividend

TDC, Denmark’s national telephone operator, is preparing to pay out DKr43.5bn (€5.8bn/US$7.1bn) in a dividend to its owners in order to return the money used to finance the company’s private equity buyout.

TDC is offering a dividend of DKr219.5 per share to be paid on April 11. The company is funding the dividend through an increase in its debt to about €10bn from €2bn before a private equity consortium acquired 88.2% of its shares. Minority shareholders, led by Danish pension fund ATP, which owns about 6% of TDC, will also receive the dividend as a windfall to compensate for the increased gearing of the company.

This dividend will then repay the €2.275bn loan bridge to a high yield bond that was put in place by the financial sponsors. The total loan to fund the takeover was €8.5bn, arranged by Barclays, Credit Suisse, Deutsche Bank, JPMorgan and Royal Bank of Scotland.

According to a lawyer unconnected to the deal, this type of strategy to use increased borrowings to pay a dividend was relatively common in buyouts and public companies. By using a dividend, a company can bypass laws preventing a takeover using a target’s assets to fund the deal.

The board of TDC was altered after the sponsors, through bid vehicle Nordic Telephone Company, took majority control. Kurt Björklund is now chairman, with Gustavo Schwed, Lawrence Guffey, Richard Wilson, Oliver Haarmann, Jan Bardino, Bo Magnussen, Steen Jacobsen and Leif Hartmann on the board representing buyout firms Apax, Blackstone, KKR, Permira and Providence.

However, the takeover has proved controversial, with legal proceedings against the Danish Commerce and Companies Agency about to start in order to overturn a judgement preventing a squeeze out of minority investors.

At an extraordinary general meeting of TDC on February 28, Nordic Telephone Company passed a resolution allowing it to squeeze out minority investors even if it owned less than 90% of the company, as required under Danish law.

On March 6, ATP issued a writ against NTC and TDC claiming that the compulsory redemption was invalid, a move that was supported two days later by the Danish Commerce and Companies Agency.

TDC on April 5 said it was challenging the ruling, saying: “It is in TDC’s interest to obtain clarity for all shareholders. TDC has, therefore, today decided to bring the decision of the DCCA before the courts.”

James Mawson