Acquisition of shares in Litenite Limited
On 29 February 2016 Polkomtel (Company’s indirect subsidiary) acquired 100% shares of Litenite Ltd. from Ortholuck Ltd. The consideration for the 100% shares of Litenite Ltd. amounted to 1 Euro (not in millions), which takes into account Litenite’s net indebtedness.
Litenite Ltd. is a direct owner of shares in Midas S.A. (‘Midas’), representing 65.9975% of the total number of votes and share capital in Midas. Following the acquisition on 29 February 2016 the Group assumed control over Midas S.A. and its subsidiaries: Aero 2 Sp. z o.o., Altalog Sp. z o.o. oraz Sferia S.A. Midas Group is involved in telecommunication activities.
Otholuck is controlled by Mr. Zygmunt Solorz, ultimate controlling party of the Company.
On 29 February 2016 Polkomtel announced a tender offer to purchase 503,124,060 shares of Midas S.A., representing 34.0025% of the total number of votes and share capital of Midas. The price of the Midas shares in the tender offer has been set for PLN 0.81 (not in millions) per one share.
Following the closing of subscription for shares on 19 April 2016, subscriptions were made for the total of 403,054,449 shares, representing 27.2395% of the total number of votes and share capital of Midas. Upon completion of the above transaction Cyfrowy Polsat held indirectly 93.237% of the total number of votes and share capital of Midas.
On 5 May 2016 Polkomtel adopted a resolution to acquire up to 100% shares in Midas S.A. Accordingly, Polkomtel will proceed with announcing and conducting a mandatory squeeze-out of Midas shares.
On 31 May 2016 Polkomtel purchased 100,069,611 shares, representing 6.763% of the total number of votes and share capital of Midas. Upon completion of the above transaction Cyfrowy Polsat holds indirectly 100% of the total number of votes and share capital of Midas.
The Group uses the purchase accounting method for entities acquired under common control with the assumption that the full control over Midas Group (i.e. 100% shares) was acquired on 29 February 2016.
Consideration transferred
| Final value of transferred consideration | |
|---|---|
| Cash transferred for the 100% shares of Litenite Ltd. | 0.0* |
| Cash transferred for non-controlling interests in Midas S.A. | 407.5 |
| Final value as at 29 February 2016 | 407.5 |
* the consideration for the 100% shares of Litenite Ltd. amounted to 1 Euro (not in millions), which takes into account Litenite’s net indebtedness
Reconciliation of transactional cash flow
| Cash transferred | (407.5) |
| Cash and cash equivalents received* | 262.2 |
| Cash decrease in the period of 12 months ended 31 December 2016 | (145.3) |
* included restricted cash in the amount of PLN 20.0
Fair value valuation of net assets as at acquisition date
The table below presents final fair values of identified assets and liabilities of the acquired companies, as at the acquisition date, and goodwill accounted for an acquisition.
Final fair values of assets and liabilities acquired as at 29 February 2016:
| Fair value as at the acquisition date (29 February 2016) | |
|---|---|
| Net assets: | |
| Property, plant and equipment | 542.3 |
| Buildings | 86.8 |
| Network systems and equipment | 266.2 |
| Other property, plant and equipment | 0.1 |
| Assets under construction | 189.2 |
| Intangible assets | 1,525.9 |
| Software and licenses | 2.2 |
| Concessions | 1,507.7 |
| Other | 0.8 |
| Intangible asset in realization and prepayments | 15.2 |
| Other non-current assets | 3.7 |
| Deferred tax assets | 127.3 |
| Inventory | 0.7 |
| Trade receivables and other receivables | 101.3 |
| Other current assets | 7.7 |
| Cash and equivalents | 262.2 |
| Loans and borrowings | (378.7) |
| Issued bonds (Litenite) | (794.2) |
| Issued bonds (Midas) | (329.0) |
| Deferred tax liabilities | (251.6) |
| Other non-current liabilities and provisions | (19.2) |
| Trade liabilities and other liabilities | (115.8) |
| Deferred income | (545.6) |
| Value of net assets | 137.0 |
| Value of non-controlling interest in Sferia S.A. and Altalog Sp. z o.o. as at 29 February 2016 | 98.3 |
| Consideration transferred | 407.5 |
| Goodwill | 368.8 |
During the purchase price allocation the Group identified key concessions. The fair value of key telecommunication concessions (800 MHz, 900 MHz, 1800 MHz) is estimated based on the market approach. Please note that there is a pending legal dispute in respect to the telecommunication concession for the 1800 MHz frequency granted to Mobyland Sp. z o.o. (now Aero 2 Sp. z o.o.) and Centernet S.A. (now Aero 2 Sp. z o.o.) – fair value of this concession as at 29 February 2016 is equal to PLN 339.9. Proceedings to invalidate the 1800 MHz frequency allocation tender have been instigated by T-Mobile and Orange. Supreme Administrative Court (NSA), in its ruling dated 8 May 2014, sustained the decision of the Court of First Instance and repealed the decision issued by the President of the Office of Electronic Communications (UKE) on 23 September 2011 which partially invalidated the above mentioned tender. Following the decision of the Supreme Administrative Court, UKE informed that “the decisions regarding re-running the tender will be taken by the Office upon careful analysis of the written justification of NSA’s rulings and the Court’s guidelines regarding further procedure as well as upon analysis of the legal situation”. UKE also stated that the ‘reservation decisions issued by UKE President remained valid while the operators could continue providing their services while using these frequencies’. On 23 December 2016 President of UKE notified the parties the the tender annulment proceedings relating to the 1800 MHz frequency have been adopted. The management board is unable to predict the final outcome of the dispute however in management’s opinion this issue should have no negative impact on the results and financial condition of the Group (the Group is able to provide its services using alternative frequencies). Accordingly, no valuation adjustment has been made in these consolidated financial statements that might have been necessary should the dispute’s outcome be unfavorable for the entity.
During the purchase price allocation the Group analyzed the embedded derivative instrument such as the early redemption option of Midas’ and Litenite’s bonds – the analysis and the accounting standards applied by the Group do not indicate the necessity to recognize the instrument on the balance sheet.
Goodwill is allocated to the "Services to individual and business customers" operating segment.
The revenue and net loss included in the interim consolidated income statement for the reporting period since 29 February 2016 contributed by Litenite group amounted to PLN 753.3 and PLN 137.5, respectively. Had it been acquired on 1 January 2016 the proforma revenue and net income included in the consolidated income statement for would have amounted to PLN 9,650.1 and PLN 970.6, respectively.
Acquisition of shares in IT Polpager S.A.
On 30 September 2016 Polkomtel (Company’s indirect subsidiary) acquired 100% shares of IT Polpager S.A. from Trigon XVII Fundusz Inwestycyjny Zamknięty and Trigon XVIII Fundusz Inwestycyjny Zamknięty. The consideration for the 100% shares of IT Polpager S.A. amounted to PLN 10.3.
Consideration transferred
| Final value of transferred consideration | |
|---|---|
| Cash transferred for the 100% shares of IT Polpager S.A. | 10.3 |
| Final value as at 30 September 2016 | 10.3 |
Reconciliation of transactional cash flow
| Cash transferred | (10.3) |
| Cash and cash equivalents received | 11.2 |
| Cash increase in the period of 12 months ended 31 December 2016 | 0.9 |
Fair value valuation of net assets as at acquisition date
The table below presents final fair values of identified assets and liabilities of the acquired companies, as at the acquisition date, and goodwill accounted for an acquisition.
Final fair values of assets and liabilities acquired as at 30 September 2016:
| Fair value as at the acquisition date (30 September 2016) | |
|---|---|
| Net assets: | |
| Deferred tax assets | 0.1 |
| Trade receivables and other receivables | 1.4 |
| Cash and equivalents | 11.2 |
| Trade liabilities and other liabilities | (2.6) |
| Value of net assets | 10.1 |
| Consideration transferred | 10.3 |
| Goodwill | 0.2 |
Goodwill is allocated to the "Services to individual and business customers" operating segment.
The revenue and net loss included in the consolidated income statement for the reporting period since 30 September 2016 contributed by IT Polpager amounted to PLN 3.4 and PLN 0.1, respectively. Had it been acquired on 1 January 2016 the proforma revenue and net income included in the consolidated income statement for would have amounted to PLN 9,729.2 and PLN 1,027.2, respectively.