European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<ul>
<li>Almost killed by Covid and debt burden, funeral company Dignity agreed to a 550p offer (15.5x EV/Fwd EBITDA). Shifting demographics, Baby Boomers and capex investments should provide clients and growth.</li>
<li>Unlike other takeout transactions, all shareholders may elect to partly reinvest in the bidding consortium: either unlisted non-voting Valderrama D shares or listed Castelnau (with Dignity making c.50% of NAV).</li>
<li>My base-case DCF fair value estimate is 531p, 3.5% downside vs. offer price, which seems fair. I set my TP at 550p. Spread gross/annualised is 1.1%/3.2%.</li>
</ul>


Almost killed by Covid and debt burden, funeral company Dignity agreed to a 550p offer (15.5x EV/Fwd EBITDA). Shifting demographics, Baby Boomers and capex investments should provide clients and growth.
Unlike other takeout transactions, all shareholders may elect to partly reinvest in the bidding consortium: either unlisted non-voting Valderrama D shares or listed Castelnau (with Dignity making c.50% of NAV).
My base-case DCF fair value estimate is 531p, 3.5% downside vs. offer price, which seems fair. I set my TP at 550p. Spread gross/annualised is 1.1%/3.2%.


<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;">
<li>
<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>
</li>
<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>
</li>
<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>
</ul>
<div>
<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>The bid of MásMóvil for Euskaltel makes strategic sense because it both reinforces the position of the enlarged group as the fourth largest national operator and the obtention of synergies through network sharing.</p>
<p>The offered price assumes <strong>24.3x Fwd P/E (vs. 14.2x median of European comparables) and 9.7x EV/EBITDA (vs 6.9x for comps)</strong>.</p>
<p>Several funds have acquired significant stakes in the capital of Euskaltel. Among them, <strong>Magnetar Capital</strong> stands out, with a joint stake, through several vehicles, of <strong>7.96%</strong>, with a value over €155 mn. Syquant has acquired 3.9%, Citigroup, c. 1% and DWS Investment another 1%. Capital Group (3.3%) and NN Group (6.8%) have reduced their stakes.</p>
<p>The <a href="http://www.cnmv.es/Portal/verDoc.axd?t=%7bd587a5ae-55c8-44b2-bb09-aa1f48b90805%7d" target="_blank" rel="noopener">acceptance period</a> started on 7 July and will last until 30 July inclusive. The period for competing offers remains open until the fifth calendar day prior to the end of the acceptance period (i.e. 25 July).</p>
<p>Interloper risk seems almost non-existing, in my view, once Masmovil has achieved the irrevocable commitment of the main Euskaltel shareholders (52.32% irrevocable undertakings). Despite not being a takeout bid, the aim of Masmovil is to delist Euskaltel if it reaches over 90% acceptances.</p>
<p>The deal should close by mid-August. Gross spread is 0.4%. Recommendation is <strong>long and</strong> <strong>tender.</strong></p>

The bid of MásMóvil for Euskaltel makes strategic sense because it both reinforces the position of the enlarged group as the fourth largest national operator and the obtention of synergies through network sharing.
The offered price assumes 24.3x Fwd P/E (vs. 14.2x median of European comparables) and 9.7x EV/EBITDA (vs 6.9x for comps).
Several funds have acquired significant stakes in the capital of Euskaltel. Among them, Magnetar Capital stands out, with a joint stake, through several vehicles, of 7.96%, with a value over €155 mn. Syquant has acquired 3.9%, Citigroup, c. 1% and DWS Investment another 1%. Capital Group (3.3%) and NN Group (6.8%) have reduced their stakes.
The acceptance period started on 7 July and will last until 30 July inclusive. The period for competing offers remains open until the fifth calendar day prior to the end of the acceptance period (i.e. 25 July).
Interloper risk seems almost non-existing, in my view, once Masmovil has achieved the irrevocable commitment of the main Euskaltel shareholders (52.32% irrevocable undertakings). Despite not being a takeout bid, the aim of Masmovil is to delist Euskaltel if it reaches over 90% acceptances.
The deal should close by mid-August. Gross spread is 0.4%. Recommendation is long and tender.

<p><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> (delisted) launches a c. €2 bn friendly voluntary takeover bid for <a href="https://www.smartkarma.com/entities/euskaltel-sa" target="_blank" data-smartkarma-citation="entities:21263:1" rel="noopener">Euskaltel SA (EKT SM),</a> for which it already has 52% irrevocable undertakings. MásMóvil abandons plans to acquire Vodafone Spain.</p>
<p>I had already mentioned in comments on <a href="https://www.smartkarma.com/entities/corp-financiera-alba-sa" target="_blank" data-smartkarma-citation="entities:21245:1" rel="noopener">Corp Financiera Alba Sa (ALB SM)</a> (see monthly Insights on selected European holdcos) that Euskaltel was a candidate in any telco consolidation in Spain. The operation makes strategic sense. MásMóvil strengthens its position as the fourth domestic operator and strengthens its position in the north of Spain. For Euskaltel shareholders it means receiving a decent premium: c.16% compared to the prior day price and c. 27% compared to 6-month VWAP. Although the offer is not a delisting one, MásMóvil intends to promote the exclusion of Euskaltel's shares from trading.</p>
<p>The offer price seems full.</p>
<ul>
<li>Capital IQ consensus median TP out of 14 estimates is €10.4.</li>
</ul>
<p>The offer represents <strong>4.7x EV/21e Revenue</strong>, <strong>10x EV/21e EBITDA</strong> and <strong>26x Fwd P/E</strong> (source: Capital IQ consensus) and compares favorably to recent Europeans deals:</p>
<ul>
<li>
<p>Altice Europe's renegotiated terms represented 7.2x EV/Fwd EBITDA and 23.5 Fwd P/E.</p>
</li>
<li>
<p>Play Communications: 6.4x EV/Fwd EBITDA.</p>
</li>
<li>
<p>Sunrise Communications: 3.6x EV/Revenue, 9.9x EV/NTM EBITDA and 45.5x Price/Forward EPS.</p>
</li>
<li>
<p>TalkTalk: 6.9x EV/Fwd EBITDA and 18.2x Fwd P/E.</p>
</li>
<li>
<p>TeleColumbus: 4.1x EV/Fwd Revenue and 8.5x EV/Fwd EBITDA.</p>
</li>
</ul>
<p><strong>Gross spread is 0.45%</strong>. A sweetened bid looks unlikely, in my view. I would wait for share price weakness before setting up a position. A typical gross spread in any low-risk European deal seems to be c. 2%.</p>
<p>Trading volume today has reached 6.16 mn shares and the closing price has been €11.12.</p>
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Masmovil Ibercom SA (MAS SM) (delisted) launches a c. €2 bn friendly voluntary takeover bid for Euskaltel SA (EKT SM), for which it already has 52% irrevocable undertakings. MásMóvil abandons plans to acquire Vodafone Spain.
I had already mentioned in comments on Corp Financiera Alba Sa (ALB SM) (see monthly Insights on selected European holdcos) that Euskaltel was a candidate in any telco consolidation in Spain. The operation makes strategic sense. MásMóvil strengthens its position as the fourth domestic operator and strengthens its position in the north of Spain. For Euskaltel shareholders it means receiving a decent premium: c.16% compared to the prior day price and c. 27% compared to 6-month VWAP. Although the offer is not a delisting one, MásMóvil intends to promote the exclusion of Euskaltel's shares from trading.
The offer price seems full.

Capital IQ consensus median TP out of 14 estimates is €10.4.

The offer represents 4.7x EV/21e Revenue, 10x EV/21e EBITDA and 26x Fwd P/E (source: Capital IQ consensus) and compares favorably to recent Europeans deals:


Altice Europe's renegotiated terms represented 7.2x EV/Fwd EBITDA and 23.5 Fwd P/E.


Play Communications: 6.4x EV/Fwd EBITDA.


Sunrise Communications: 3.6x EV/Revenue, 9.9x EV/NTM EBITDA and 45.5x Price/Forward EPS.


TalkTalk: 6.9x EV/Fwd EBITDA and 18.2x Fwd P/E.


TeleColumbus: 4.1x EV/Fwd Revenue and 8.5x EV/Fwd EBITDA.


Gross spread is 0.45%. A sweetened bid looks unlikely, in my view. I would wait for share price weakness before setting up a position. A typical gross spread in any low-risk European deal seems to be c. 2%.
Trading volume today has reached 6.16 mn shares and the closing price has been €11.12.

























Euskaltel - MasMóvil: Another Step in Spanish Telco Consolidation

<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>
<ul>
<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>
<ul>
<li>iliad has c. EUR1.57 bn in undrawn lines and EUR 1 bn in cash and equivalents.</li>
</ul>
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<div>
<div>
<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>
</ul>
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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

Spain

Masmovil Ibercom SA provides telecommunications services. The Company offers fixed line, mobile, and Internet services. Masmovil Ibercom serves customers in Spain.


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Masmovil Ibercom SA (MAS SM)

Dignity's Last Gasps

Almost killed by Covid and debt burden, funeral company Dignity agreed to a 550p cash offer. Shifting demographics, Baby Boomers and capex...

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

MásMóvil/Euskaltel: Deal Progress

Interloper risk seems almost non-existing. The aim of Masmovil is to delist Euskaltel if it reaches over 90% acceptances. Deal should close by mid...

Jesus Rodriguez Aguilar

Euskaltel - MasMóvil: Another Step in Spanish Telco Consolidation

The operation makes strategic sense. The offer price seems full and on EV/Fwd EBITDA basis compares favorable to recent European deals. Gross...

Jesus Rodriguez Aguilar

Play Communications - Iliad: Offer Announcement

Some savvy investors and tel

Jesus Rodriguez Aguilar

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