Transformation after a change of ownership–case DNA/Telenor

DNA Oyj was founded in 2000 of Finnet Group’s mobile phone operations division, amidst of the rapidly developing telecommunications market in Finland. The company quickly established its position as the third mobile communication operator in Finland as well as a telecommunications company offering fixed network services after the largest Finnet telephone cooperatives merged into DNA Oyj. Within 10 years DNA created a strong consumer brand and a customer base of over 3 million consumers. Financial performance of the company was strong based on lean operations, good cost control, strong corporate culture, and flexible working conditions. DNA was one of the pioneers to apply mobile and remote work opportunities. With all this taking place, the company attracted a lot of interest from private equity investors as well as financial institutions persuading the company to get publicly listed.

This resulted in a successful IPO in 2016. In less than one year the company share price more than doubled, exceeding the performance of both domestic and international peers. At the end of 2016 DNA’s 4G network reached 99.6 percent of the population. By continuing strong financial performance, the company was also able to pay healthy dividends to shareholders. So as expected, the interest in the company by private equity investors as well as potential partners continued. The next chapter in DNA journey started in the spring of 2019 when two major institutional shareholders, Finnda and PHP Holding, announced they had agreed to sell their stakes, 85 percent of DNA shares, to Norwegian Telenor Group.

The Board ensuring a fair deal for all

In the beginning the selling was a bittersweet decision for both the DNA Management and the Board of Directors–coming less than 3 years after the IPO. Many things in the company and roles in the organization were going to change as it was clear that after the redemption of all minority shareholders the company would most likely be delisted. The other side of the coin was that Telenor was a well-managed, good company with whom DNA would have many synergies which could be leveraged for the good of both companies.

From the point of view of the Board of Directors, our main concern was to ensure that all company shareholders have been and will be treated equally. DNA had become a popular stock held by many individual shareholders. As the terms of the transaction had been agreed between Telenor and two main owners, the Board’s responsibility was to make sure that the acquisition price was based on a fair and correct valuation of the company. We were not, however, completely unprepared for ownership changes like this, but had conducted a full valuation analysis and the main drivers of the valuation by an investment bank in 2018. This offered a good base for the Board in taking major decisions and supporting offers to minority shareholders which the process required.

Retaining key people

Another key topic for the Board and for the new owner was to minimize the risk of losing key people. Transitioning from a listed company to a subsidiary affects the role of many people in the organization, both negatively and positively. Some roles will not have the autonomy they had before, and many processes in the company will have to be streamlined with the new parent company. At the same time, a large international group can offer a number of very interesting career opportunities for many employees, more than a domestic company operating in the Finnish market. Telenor did a good job in demonstrating their commitment to this, as one of their first decisions was the promotion of DNA’s CEO to head Telenor’s Nordic operations and to appoint him to the Executive Management Team of Telenor Group. This, along with several other personnel moves, meant that many of the issues raised by DNA during the integration process were heard and addressed well. For all employees to feel being a part of “one team” was an important target for both the Board and Telenor, as in the high technology industry in particular the success of acquisitions is very much dependent on retaining and motivating key people.

In order to ensure a smooth integration, Telenor also decided to keep in the Board three independent directors who had a longer legacy in the company. Although the Board’s role changed to some extent after delisting, it was an excellent forum to make decisions and follow the integration process as well as discuss obstacles and resolve conflicts if needed. This was another way of giving the DNA employees confidence of their voices being heard. Telenor management was very sensitive to this, and any major issues were escalated to the top of the organization.

Making the best out of a merger

When merging two big companies there will always be changes which everyone is not happy with. New policies, processes, and reporting practices will have to be applied and some key roles will change. It is, however, in everyone’s interest to look forward and make the best out of these changes. Telenor and DNA complement one another in many ways–Telenor is a stronger company in some business segments, and cooperation in many areas such as data security, AI and supplier relationships benefit both companies. Like many Norwegian companies, Telenor has an advanced diversity policy which helped DNA to strengthen their diversity program. Furthermore, DNA has been a pioneer in leveraging flexible work company-wide. This experience was useful for both companies in adapting to the impact of Covid-19 as applying mobile and remote work became crucial for business continuity.

Let’s try to summarize some of the key learnings of this transition. Firstly, it is good for the Board to prepare for changes in the ownership or structure of the company. Being an acquisition target is usually well known by the market, and in DNA’s case the valuation analysis done a couple of years before the transaction was a valuable tool for the DNA Board. Secondly, after the transaction terms have been agreed by major shareholders, the Board must ensure that all shareholders are treated equally and fairly. At the same time, the Board’s role shifts from maximizing shareholder value to the next level: protecting shareholder value of the new owner. In this work, a good and open dialogue between the Board and the new owner is the key. In the DNA/Telenor case this was easy as the corporate culture of these companies was a good match, helped by the fact that Finns and Norwegians have many similar characteristics. We actually enjoyed working together! The third learning is thus good communications, both between the Board and the new owner, as well as internal communications to the employees.

DNA/Telenor joint journey now continues under a fully merged company. DNA keeps its valuable brand and strong autonomy in the domestic market as an important part of the Telenor family.

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