European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<ul>
<li>KKR intends to offer €0.505/ordinary&amp;savings, a 44% premium and 5.2x EV/Fwd EBITDA. KKR is willing to split Telecom Italia, by separating the network (Infra Co) from the services (ServiceCo).</li>
<li>The attempt would need 67% of the ords float tendered and no interference from the Italian Government. The market is cautious, but believes this time can happen.</li>
<li>In light of the possible offer, I change my recommendation to <strong>long TIT IM</strong>, <strong>long TITR IM</strong>, <strong>TP 0.505/share</strong>. Gross spread is 10.5%. The premium savings/ordinary shares has decreased to 0.9%.</li>
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KKR intends to offer €0.505/ordinary&amp;savings, a 44% premium and 5.2x EV/Fwd EBITDA. KKR is willing to split Telecom Italia, by separating the network (Infra Co) from the services (ServiceCo).
The attempt would need 67% of the ords float tendered and no interference from the Italian Government. The market is cautious, but believes this time can happen.
In light of the possible offer, I change my recommendation to long TIT IM, long TITR IM, TP 0.505/share. Gross spread is 10.5%. The premium savings/ordinary shares has decreased to 0.9%.


KKR Potential Offer for The (W)Hole of Telecom Italia

<ul>
<li>KKR is looking at alternatives ranging from raising its stake in Telecom Italia’s grid operations to pursuing a full takeover of the unit, as an alternative to the merger of FiberCop (the crown jewel) with Open Fiber, by which Telecom Italia would own a minority stake in the merged entity.</li>
<li>The merger seems designed to facilitate the generation of cash (by partial disposal and/or enhancing the share price by focusing analysts’ attention on its SOTP). Ongoing restructuring has created uncertainty in Telecom Italia’s intentions and potential actions, which in turn will introduce increased volatility into the pricing of Telecom Italia equity and debt. Vivendi, sitting on a 67% paper loss, is (rightly in my view) concerned.</li>
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<p>I would look to put on any the following strategies: short credit/buy protection, short TIT IM (my SOTP valuation is €0.29/ordinary share), and long savings/short ords.</p>
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KKR is looking at alternatives ranging from raising its stake in Telecom Italia’s grid operations to pursuing a full takeover of the unit, as an alternative to the merger of FiberCop (the crown jewel) with Open Fiber, by which Telecom Italia would own a minority stake in the merged entity.
The merger seems designed to facilitate the generation of cash (by partial disposal and/or enhancing the share price by focusing analysts’ attention on its SOTP). Ongoing restructuring has created uncertainty in Telecom Italia’s intentions and potential actions, which in turn will introduce increased volatility into the pricing of Telecom Italia equity and debt. Vivendi, sitting on a 67% paper loss, is (rightly in my view) concerned.






I would look to put on any the following strategies: short credit/buy protection, short TIT IM (my SOTP valuation is €0.29/ordinary share), and long savings/short ords.











KKR/Telecom Italia: Open Fiber Deal, Ongoing Restructuring, Strategies

<p>On 30 July, Xavier Niel, co-founder and controlling shareholder of <a href="https://www.smartkarma.com/entities/iliad-sa" target="_blank" data-smartkarma-citation="entities:21486:1" rel="noopener">Iliad SA (ILD FP)</a> (70.63% of the share capital and 78.67% of the voting rights) launched a simplified public tender offer for the remaining iliad stake he does not own.</p>
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<ul style="list-style-type: disc;">
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<p>The offer price will be <strong>€182/share</strong>, a premium of 61.0% on the closing share price on the prior trading session, c. 50% premium to the 1-month VWAP and 52.7% to the 3-month VWAP.</p>
</li>
<li>
<p>This offer for the remaining 29.37% signals Niel's belief that iliad is undervalued, as per the typical “From now on, a new phase of development for Iliad will require quicker transformations and significant investments that will be easier to carry out as a private company,” Niel said in a statement. “Our ambition for Iliad is to accelerate to become a leader in telecommunications in Europe.”</p>
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<li>
<p>Niel had previously boosted its stake in 2019 by buying at €120/share as the stock stagnated at nearly half its all-time highs.</p>
</li>
<li>
<p>It is a similar move to that carried out by Patrick Drahi, when he took private Altice Europe (see <a href="https://www.smartkarma.com/insights/altice-next-private-takeover-announcement" target="_blank" data-smartkarma-citation="insights:43240" rel="noopener">Altice - Next Private Takeover Announcement</a> and <a href="https://www.smartkarma.com/insights/altice-next-private-trading-above-terms" target="_blank" data-smartkarma-citation="insights:45873" rel="noopener">Altice - Next Private: Trading Above Terms</a>), because of low valuations of European telecoms. Private equity has been circling <a href="https://www.smartkarma.com/entities/koninklijke-kpn-nv" target="_blank" data-smartkarma-citation="entities:21122:1" rel="noopener">Koninklijke KPN (KPN NA)</a> and KKR (in a consortium) has taken over <a href="https://www.smartkarma.com/entities/masmovil-ibercom-sa" target="_blank" data-smartkarma-citation="entities:29013:1" rel="noopener">Masmovil Ibercom SA (MAS SM)</a> and indirectly it is acquiring <a href="https://www.smartkarma.com/entities/euskaltel-sa" target="_blank" data-smartkarma-citation="entities:21263:1" rel="noopener">Euskaltel SA (EKT SM)</a>.</p>
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<li>Niel has bridge financing which should be comfortably refinanced with high-yield debt. He will be receiving c. €178 mn in dividends from FY2021e.</li>
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<p>Since November 2020, iliad's shares have lost nearly a third of their value, both on investor concerns about investments in Italy and price wars in France. European telecoms will also need to carry out significant capex for the 5G deployment and upgrade networks to high-speed fibre.</p>
<p>This is essentially an <strong>opportunistic bid</strong>, as Xavier Niel thinks the market is undervaluing his company, coupled with the planned Capex investments. This is not too disimilar to the <a href="https://www.smartkarma.com/entities/kaz-minerals-plc" target="_blank" data-smartkarma-citation="entities:21999:1" rel="noopener">KAZ Minerals (KAZ LN)</a> takeout offer.</p>
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<p>iliad has growth ambitions in Poland  to become a convergent player and on 30 July submitted an indicative bid to fully acquire <span title="" data-toggle="tooltip" data-offset="10%" data-trigger="manual" data-html="true" data-container="body" data-template='&lt;div class="tooltip" role="tooltip"&gt;&lt;div class="news-article-tooltip-arrow tooltip-arrow"&gt;&lt;/div&gt;&lt;div class="tooltip-inner"&gt;&lt;/div&gt;&lt;/div&gt;' data-original-title="">Liberty-Global</span>-owned <span title="" data-toggle="tooltip" data-offset="10%" data-trigger="manual" data-html="true" data-container="body" data-template='&lt;div class="tooltip" role="tooltip"&gt;&lt;div class="news-article-tooltip-arrow tooltip-arrow"&gt;&lt;/div&gt;&lt;div class="tooltip-inner"&gt;&lt;/div&gt;&lt;/div&gt;' data-original-title="">UPC Poland</span>. The indicative bid values the Polish operator at 7.3 billion Polish zlotys. iliad said the valuation is based on EBITDA of 782 million zlotys this year for UPC Poland. iliad is debating whether to acquire a broadband operator in the Polish market, or establishing its own broadband company to deploy optic fiber technology in Poland. This follows on the September 2020 acquisition of <a href="https://www.smartkarma.com/entities/play-communications-sa" target="_blank" data-smartkarma-citation="entities:29661:1" rel="noopener">Play Communications SA (1P1 GR)</a> for €3.5 billion (<a href="https://www.smartkarma.com/insights/play-communications-iliad-offer-announcement" target="_blank" data-smartkarma-citation="insights:43457" rel="noopener">Play Communications - Iliad: Offer Announcement</a>).</p>
<p>The takeout and delisting of iliad represents an opportunity for Xavier Niel. The 5G capex schedule   and fiber broadband upgrades will require heavy investments that are discouraging investors from increasing positions in reportedly cheap European telcos. At the same time, it has been the large American tech companies that have reaped the benefits of the higher internet traffic.</p>
<p>The offer represents c. 4.9% CF yield and the shares are trading at c. 6.5x on 2021E EV/EBITDAaL. Although the offer is interesting, and will likely receive majority of acceptances, my estimate of fair value (DCF based) is <strong>€190.7/share</strong>, which represents a 4.7% upside to the offer price. Market seems to await a sweetened bid. On this basis, and considering the risk/reward, my recommendation is <strong>Long ILD FP</strong>.</p>
<p>iliad's shares closed, on 30 July, 61% higher at €182.05, just above the offer price, giving it a market cap of c. €10.85b n.</p>
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On 30 July, Xavier Niel, co-founder and controlling shareholder of Iliad SA (ILD FP) (70.63% of the share capital and 78.67% of the voting rights) launched a simplified public tender offer for the remaining iliad stake he does not own.



The offer price will be €182/share, a premium of 61.0% on the closing share price on the prior trading session, c. 50% premium to the 1-month VWAP and 52.7% to the 3-month VWAP.


This offer for the remaining 29.37% signals Niel's belief that iliad is undervalued, as per the typical “From now on, a new phase of development for Iliad will require quicker transformations and significant investments that will be easier to carry out as a private company,” Niel said in a statement. “Our ambition for Iliad is to accelerate to become a leader in telecommunications in Europe.”


Niel had previously boosted its stake in 2019 by buying at €120/share as the stock stagnated at nearly half its all-time highs.


It is a similar move to that carried out by Patrick Drahi, when he took private Altice Europe (see Altice - Next Private Takeover Announcement and Altice - Next Private: Trading Above Terms), because of low valuations of European telecoms. Private equity has been circling Koninklijke KPN (KPN NA) and KKR (in a consortium) has taken over Masmovil Ibercom SA (MAS SM) and indirectly it is acquiring Euskaltel SA (EKT SM).

Niel has bridge financing which should be comfortably refinanced with high-yield debt. He will be receiving c. €178 mn in dividends from FY2021e.


Since November 2020, iliad's shares have lost nearly a third of their value, both on investor concerns about investments in Italy and price wars in France. European telecoms will also need to carry out significant capex for the 5G deployment and upgrade networks to high-speed fibre.
This is essentially an opportunistic bid, as Xavier Niel thinks the market is undervaluing his company, coupled with the planned Capex investments. This is not too disimilar to the KAZ Minerals (KAZ LN) takeout offer.


iliad has growth ambitions in Poland  to become a convergent player and on 30 July submitted an indicative bid to fully acquire Liberty-Global-owned UPC Poland. The indicative bid values the Polish operator at 7.3 billion Polish zlotys. iliad said the valuation is based on EBITDA of 782 million zlotys this year for UPC Poland. iliad is debating whether to acquire a broadband operator in the Polish market, or establishing its own broadband company to deploy optic fiber technology in Poland. This follows on the September 2020 acquisition of Play Communications SA (1P1 GR) for €3.5 billion (Play Communications - Iliad: Offer Announcement).
The takeout and delisting of iliad represents an opportunity for Xavier Niel. The 5G capex schedule   and fiber broadband upgrades will require heavy investments that are discouraging investors from increasing positions in reportedly cheap European telcos. At the same time, it has been the large American tech companies that have reaped the benefits of the higher internet traffic.
The offer represents c. 4.9% CF yield and the shares are trading at c. 6.5x on 2021E EV/EBITDAaL. Although the offer is interesting, and will likely receive majority of acceptances, my estimate of fair value (DCF based) is €190.7/share, which represents a 4.7% upside to the offer price. Market seems to await a sweetened bid. On this basis, and considering the risk/reward, my recommendation is Long ILD FP.
iliad's shares closed, on 30 July, 61% higher at €182.05, just above the offer price, giving it a market cap of c. €10.85b n.




Xavier Niel/Iliad: An Offer Shareholders Can't Refuse?

<p><a href="https://www.smartkarma.com/entities/cellnex-telecom-sau" target="_blank" data-smartkarma-citation="entities:21258:1" rel="noopener">Cellnex Telecom Sau (CLNX SM)</a> has closed a transformational operation, valued at around €10 bn, which has allowed it to reach over 103,000 telecommunications towers (vs. the prior 73,000) and strengthen its leadership position in Europe. The company has met its expansion objectives, even earlier than planned (December 2021). A capital increase has not been necessary, although it has run out of ammunition for future acquisitions.</p>
<p>It is difficult to overstate the importance of the purchase. It represents an earthquake in the European market for telecommunications towers, which now has a colossus, far away from any other potential European player.</p>
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<li>Since its IPO in 2015, Cellnex has invested c. €26 bn in acquisitions.</li>
<li>After the pact, Cellnex's footprint extends to twelve countries. Spain (where Cellnex is based), with its 11,000 towers, is now only the fifth market in number of towers (and represents only 10% of the total footprint) behind Italy (24,500) , United Kingdom (14,700), France (13,700) and Poland (11,900).</li>
<li>This operation is unique due to its size and transformative nature: it involves raising the number of towers by 41%, revenue by 46% and backlog by up to 63%, long-term insured revenue.</li>
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<p>A capital increase was not strictly necessary to purchase the Hutchison Towers. The company had cash available of more than €8 bn. However, the <strong>net debt/EBITDA approaches 6x</strong> and therefore Cellnex runs out of ammunition for future acquisitions. I do not rule out that Cellnex pays future purchases with its own shares.</p>
<p>Taking an average of DCF valuation and multiples, my <strong>TP is €64.36</strong> per share, which implies an upside of 20% to the last closing price. Therefore my recommendation is <strong>LONG Cellnex</strong>.</p>
<ul>
<li>The dividend yield is low because Cellnex is in an accelerated expansionary phase. However, the generation of recurring cash implies a profitability of more than 5% as of 2022e.</li>
</ul>

Cellnex Telecom Sau (CLNX SM) has closed a transformational operation, valued at around €10 bn, which has allowed it to reach over 103,000 telecommunications towers (vs. the prior 73,000) and strengthen its leadership position in Europe. The company has met its expansion objectives, even earlier than planned (December 2021). A capital increase has not been necessary, although it has run out of ammunition for future acquisitions.
It is difficult to overstate the importance of the purchase. It represents an earthquake in the European market for telecommunications towers, which now has a colossus, far away from any other potential European player.

Since its IPO in 2015, Cellnex has invested c. €26 bn in acquisitions.
After the pact, Cellnex's footprint extends to twelve countries. Spain (where Cellnex is based), with its 11,000 towers, is now only the fifth market in number of towers (and represents only 10% of the total footprint) behind Italy (24,500) , United Kingdom (14,700), France (13,700) and Poland (11,900).
This operation is unique due to its size and transformative nature: it involves raising the number of towers by 41%, revenue by 46% and backlog by up to 63%, long-term insured revenue.

A capital increase was not strictly necessary to purchase the Hutchison Towers. The company had cash available of more than €8 bn. However, the net debt/EBITDA approaches 6x and therefore Cellnex runs out of ammunition for future acquisitions. I do not rule out that Cellnex pays future purchases with its own shares.
Taking an average of DCF valuation and multiples, my TP is €64.36 per share, which implies an upside of 20% to the last closing price. Therefore my recommendation is LONG Cellnex.

The dividend yield is low because Cellnex is in an accelerated expansionary phase. However, the generation of recurring cash implies a profitability of more than 5% as of 2022e.


<p><a href="https://www.smartkarma.com/entities/iliad-sa" target="_blank" data-smartkarma-citation="entities:21486:1" rel="noopener">Iliad SA (ILD FP)</a><a href="https://www.iliad.fr/presse/2020/CP_210920_Eng.pdf" target="_blank" rel="noopener">has announced</a> the acquisition of a 40% shareholding in Polish telecom operator <a href="https://www.smartkarma.com/entities/play-communications-sa" target="_blank" data-smartkarma-citation="entities:29661:1" rel="noopener">Play Communications SA (1P1 GR)</a> and its intention to acquire the remaining 60% via a tender offer. This implies a premium of 38.8% on the last trading session prior to announcement, 7.2x EV/LTM EBITDA and <strong>6.4x EV/NTM EBITDA</strong>, which seems fair, in my view. The offer has unanimous support from both iliad and Play’s boards.</p>
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<li>Play's share price has increased by 36.7% vs. prior closing, while Iliad's share price has lost 3%.</li>
</ul>
<p>This deal fits with the expansion of iliad across Europe, following acquisitions in Ireland and Italy.</p>
<p>The transaction will be cash and debt funded. iliad’s leverage ratio would increase from 2.2x at end-June 2020 to 3.2.x on a pro forma basis, but iliad intends to gradually deleverage following the acquisition.</p>
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<li>iliad has c. EUR1.57 bn in undrawn lines and EUR 1 bn in cash and equivalents.</li>
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<p>Iliad management highlighted the following <strong>deal rationale</strong>:</p>
<ul>
<li>opportunity to enter one of the largest European markets at fair value;</li>
<li>international diversification;</li>
<li>value creation: opportunity to leverage Iliad’s expertise to transform Play into a full fledged operator (thus profiting from the expected growth of the fixed Polish market (~50% penetration) and operational optimisation;</li>
<li>allows conservative leverage and +79% EPS accretion since 2021.</li>
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<p>The <strong>gross spread on the deal is 1.5%</strong>, while not terribly exciting, the estimated settlement is just nine weeks ahead. The recommendation is <strong>long Play</strong>.</p>
<p>Some savvy investors and telco operators are taking advantage of the share price weakness of the European telecom sector: <a href="https://www.smartkarma.com/entities/masmovil-ibercom-sa" target="_blank" data-smartkarma-citation="entities:29013:1" rel="noopener">Masmovil Ibercom (MAS SM)</a> , <a href="https://www.smartkarma.com/entities/altice-europe-nv" target="_blank" data-smartkarma-citation="entities:1060:1" rel="noopener">Altice NV A (ATC NA)</a> and now Play are the recently announced deals. Play’s rivals Orange Polska SA and Cyfrowy Polsat SA gained 3.2% and 1.5% respectively on today's trading.</p>

Iliad SA (ILD FP)has announced the acquisition of a 40% shareholding in Polish telecom operator Play Communications SA (1P1 GR) and its intention to acquire the remaining 60% via a tender offer. This implies a premium of 38.8% on the last trading session prior to announcement, 7.2x EV/LTM EBITDA and 6.4x EV/NTM EBITDA, which seems fair, in my view. The offer has unanimous support from both iliad and Play’s boards.

Play's share price has increased by 36.7% vs. prior closing, while Iliad's share price has lost 3%.

This deal fits with the expansion of iliad across Europe, following acquisitions in Ireland and Italy.
The transaction will be cash and debt funded. iliad’s leverage ratio would increase from 2.2x at end-June 2020 to 3.2.x on a pro forma basis, but iliad intends to gradually deleverage following the acquisition.

iliad has c. EUR1.57 bn in undrawn lines and EUR 1 bn in cash and equivalents.




Iliad management highlighted the following deal rationale:

opportunity to enter one of the largest European markets at fair value;
international diversification;
value creation: opportunity to leverage Iliad’s expertise to transform Play into a full fledged operator (thus profiting from the expected growth of the fixed Polish market (~50% penetration) and operational optimisation;
allows conservative leverage and +79% EPS accretion since 2021.




The gross spread on the deal is 1.5%, while not terribly exciting, the estimated settlement is just nine weeks ahead. The recommendation is long Play.
Some savvy investors and telco operators are taking advantage of the share price weakness of the European telecom sector: Masmovil Ibercom (MAS SM) , Altice NV A (ATC NA) and now Play are the recently announced deals. Play’s rivals Orange Polska SA and Cyfrowy Polsat SA gained 3.2% and 1.5% respectively on today's trading.

Play Communications - Iliad: Offer Announcement

France

Iliad S.A. provides a wide range of telecommunications services which include national telecommunication and dial-up, and high speed DSL and TV Internet access.

Iliad SA (ILD FP)

KKR Potential Offer for The (W)Hole of Telecom Italia

In light of the possible offer, I change my recommendation to Long TIT IM, long TITR IM, TP 0.505/share. Additional upside could come from a...

Jesus Rodriguez Aguilar

KKR/Telecom Italia: Open Fiber Deal, Ongoing Restructuring, Strategies

I would look to put on any the following strategies: short credit/buy protection, short TIT IM (my SOTP valuation is €0.29/ordinary share), and...

Jesus Rodriguez Aguilar

Xavier Niel/Iliad: An Offer Shareholders Can't Refuse?

Although the offer will likely receive majority of acceptances, my TP is €190.7, a 4.7% upside to the offer. Market awaits a sweetened bid....

Jesus Rodriguez Aguilar

Cellnex's Transformational Acquisition

The purchase represents an earthquake in European telco towers. An average of DCF and multiples gives a TP of €64.36 per share, which implies an...

Jesus Rodriguez Aguilar

Play Communications - Iliad: Offer Announcement

Some savvy investors and tel

Jesus Rodriguez Aguilar