FRANKFURT, May 12 (Reuters) - German internet service provider United Internet plans to acquire a majority stake in mobile operator Drillisch in a step-by-step stock and cash transaction to create a stronger challenger in the German telecoms market.
United Internet plans to combine Drillisch and its own 1&1 consumer fixed-line and mobile business within the group, maintaining Drillisch's independent listing and "attractive" dividend policy, the companies said on Friday.
The proposed transaction values the 1&1 Telecommunication retail business at 5.85 billion euros ($6.36 billion) and will create a business with annual sales of more than 3.2 billion euros and more than 12 million customers, the companies said.
That would put it in fourth place behind Deutsche Telekom , Vodafone and Telefonica Deutschland , all of whom have their own mobile networks. Drillisch has extensive access to Telefonica's mobile network.
The companies aim to execute the deal through two capital increases by Drillisch to buy a stake in and then all of 1&1, consequently lifting United's stake in Drillisch in exchange.
Drillisch will initially sell nine million new shares to buy 7.75 percent of 1&1 Telecommunication, which will take United Internet's stake in Drillisch to a little more than 30 percent from 20 percent and trigger a full takeover offer.
That offer will be at 50 euros per share, which the companies said represented a premium of 8.2 percent over Drillisch's three-month volume-weighted average share price. The offer is expected to run from the end of May to the end of June.
Drillisch shares closed at 48.54 euros on Thursday and were indicated up 6.5 percent before the market opened on Friday.
Drillisch would then buy the rest of 1&1 Telecommunication for 108 million new Drillisch shares, in exchange for which United's stake in Drillisch would rise to 72.7 percent.
The issuing of these new Drillisch shares would have to be approved by 75 percent of shareholders at an extraordinary general meeting, called for July 25.
"The combination with 1&1 Telecommunication is a tremendous opportunity for Drillisch and our shareholders and is a leap for our company into a completely new dimension," said Drillisch Chief Executive Vlasios Choulidis.
"In terms of sales, Drillisch AG will be about five times as large as it is today."
Choulidis would step down from operational management and become chairman of Drillisch's supervisory board if the transaction goes through as planned.
The combined company would be led by Drillisch finance chief Andre Driesen, as well as 1&1 Telecommunication CEO Martin Witt and United Internet Chief Executive Ralph Dommermuth.
United Internet's business-to-business and wholesale operations are not part of the transaction.
The two companies said they envisaged annual savings of 150 million euros from 2020, rising to 250 million euros by 2025, and costs of 50 million euros for the transaction. ($1 = 0.9200 euros) (Reporting by Georgina Prodhan; Editing by David Goodman)