European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

On 27 April, <a href="https://www.smartkarma.com/entities/orange-sa" target="_blank" data-smartkarma-citation="entities:21522:1" rel="noopener">Orange SA (ORA FP)</a> published the results of its offer for <a href="https://www.smartkarma.com/entities/orange-belgium-sa" target="_blank" data-smartkarma-citation="entities:21340:1" rel="noopener">Orange Belgium SA (MOBB EU)</a>. It now holds a 74.68% stake.
Orange has decided to re-open the tender for five trading days (28 April to 4 May inclusive, offer price unchanged) with the aim of gaining more acceptances.
Orange Belgium closed at €22.25 on 27 April, a 1.8% higher vs. the prior trading session and 1.1% above Orange's re-opened offer. The shares are inexpensive, trading at 5.2x EV/Fwd EBITDA (vs. 5.96x for peers), and offer a 9.3% 21e EFCF yield.
Its seems difficult that Orange will gain any more offer acceptances and as per Polygon's statement, it is far from being able to squeeze-out and delist. In the absence of any negotiations about bumping the offer price, TP lowered to €26.6, in line with peers' median EV/Fwd EBITDA. Reiterate long.
Risks: lower liquidity for the shares (I estimate c. €1 mn daily), lower revenues from higher competition and/or rising wholesale cable costs, higher capex investments than expected (Orange has not made clear whether they will be with a FTTH partner or will seek to acquire a cable company), entrance of a fourth mobile operator.

On 27 April, Orange SA (ORA FP) published the results of its offer for Orange Belgium SA (MOBB EU). It now holds a 74.68% stake.
Orange has decided to re-open the tender for five trading days (28 April to 4 May inclusive, offer price unchanged) with the aim of gaining more acceptances.
Orange Belgium closed at €22.25 on 27 April, a 1.8% higher vs. the prior trading session and 1.1% above Orange's re-opened offer. The shares are inexpensive, trading at 5.2x EV/Fwd EBITDA (vs. 5.96x for peers), and offer a 9.3% 21e EFCF yield.
Its seems difficult that Orange will gain any more offer acceptances and as per Polygon's statement, it is far from being able to squeeze-out and delist. In the absence of any negotiations about bumping the offer price, TP lowered to €26.6, in line with peers' median EV/Fwd EBITDA. Reiterate long.
Risks: lower liquidity for the shares (I estimate c. €1 mn daily), lower revenues from higher competition and/or rising wholesale cable costs, higher capex investments than expected (Orange has not made clear whether they will be with a FTTH partner or will seek to acquire a cable company), entrance of a fourth mobile operator.

On 13 April, <a href="https://www.smartkarma.com/entities/orange-sa" target="_blank" data-smartkarma-citation="entities:21522:1" rel="noopener">Orange SA (ORA FP)</a> <a href="https://www.orange.com/en/newsroom/press-releases/2021/orange-offers-final-price-22-euros-orange-belgium-share-unique" target="_blank" rel="noopener">announced</a> that its €22/share offer for <a href="https://www.smartkarma.com/entities/orange-belgium-sa-e3621832-2a8d-468a-aa88-979a4b982dcd" target="_blank" data-smartkarma-citation="entities:31072:1" rel="noopener">Orange Belgium (OBEL BB)</a> was final.
<ul>
<li>Orange Belgium share price closed 5.1% lower vs. the previous trading session.</li>
<li>According to the proposed schedule, the takeover bid offer will be open from 8 April to 23 April inclusive, and the results will be published on 27 April.</li>
</ul>
Polygon (holder of 5.29%, enough to prevent de-listing) said the offer price "substantially undervalues" the company.
It is difficult to argue that the offer was well-timed, following a period of underperformance from Orange Belgium, as can be seen in the chart below. As mentioned, Orange has a 52.9% stake in Orange. The opportunistic (in my view) bid was launched after a period of underperforming and low valuation (see chart in the Insight).
Analysts have recently been revising upwards the top line and EBITDA estimates of Orange Belgium, as a result of operational momentum and market share gains, especially in broadband. FY2020 EBITDA was c.8% higher vs. FY2019 EBITDA, with c. 230 bps increase in EBITDA margin.
The offer price implies 5.1x EV/21E EBITDA (below the median of peers at 5.9x, see table above) and 9.7% 21E FCF yield (source Capital IQ consensus), and 2.2% dividend yield.
Market seems to think there are grounds for an improved offer, as the share price is still above the offer price.
It is difficult to think of Polygon tendering its stake, it has strategic value and tendering it would hurt Polygon's activist reputation. A new takeout offer could happen one year after the end of the offer period of the current bid.
Taking the mid point between what Orange Belgium is offering and what I believe would be the minimum acceptable valuation for Polygon, would be a palatable €6.5 raise, or €183 mn extra that Orange would have to spend. That would add to Orange's leverage (which already is 17% higher than its market cap).
Recommendation is:
<ul>
<li>Fundamental: speculative buy, the offer undervalues Orange Belgium, in my view. Unchanged TP, €35.13.</li>
<li>Risk arb: monitor and buy on any dip below the offer price.</li>
</ul>
Holdouts may end up with a share with lower liquidity, depending on the number of shares tendered.

On 13 April, Orange SA (ORA FP) announced that its €22/share offer for Orange Belgium (OBEL BB) was final.

Orange Belgium share price closed 5.1% lower vs. the previous trading session.
According to the proposed schedule, the takeover bid offer will be open from 8 April to 23 April inclusive, and the results will be published on 27 April.

Polygon (holder of 5.29%, enough to prevent de-listing) said the offer price "substantially undervalues" the company.
It is difficult to argue that the offer was well-timed, following a period of underperformance from Orange Belgium, as can be seen in the chart below. As mentioned, Orange has a 52.9% stake in Orange. The opportunistic (in my view) bid was launched after a period of underperforming and low valuation (see chart in the Insight).
Analysts have recently been revising upwards the top line and EBITDA estimates of Orange Belgium, as a result of operational momentum and market share gains, especially in broadband. FY2020 EBITDA was c.8% higher vs. FY2019 EBITDA, with c. 230 bps increase in EBITDA margin.
The offer price implies 5.1x EV/21E EBITDA (below the median of peers at 5.9x, see table above) and 9.7% 21E FCF yield (source Capital IQ consensus), and 2.2% dividend yield.
Market seems to think there are grounds for an improved offer, as the share price is still above the offer price.
It is difficult to think of Polygon tendering its stake, it has strategic value and tendering it would hurt Polygon's activist reputation. A new takeout offer could happen one year after the end of the offer period of the current bid.
Taking the mid point between what Orange Belgium is offering and what I believe would be the minimum acceptable valuation for Polygon, would be a palatable €6.5 raise, or €183 mn extra that Orange would have to spend. That would add to Orange's leverage (which already is 17% higher than its market cap).
Recommendation is:

Fundamental: speculative buy, the offer undervalues Orange Belgium, in my view. Unchanged TP, €35.13.
Risk arb: monitor and buy on any dip below the offer price.

Holdouts may end up with a share with lower liquidity, depending on the number of shares tendered.

Orange Belgium - Orange: Final Offer and Holdouts

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

<a href="https://www.smartkarma.com/entities/uipath-inc" target="_blank" data-smartkarma-citation="entities:32975:1" rel="noopener">UiPath Inc (PATH US)</a> plans to complete its IPO in the coming days. The IPO price range is between $43 to $50 per share. The<a href="https://www.marketwatch.com/story/uipath-sets-ipo-terms-to-raise-up-to-3404-million-and-be-valued-at-up-to-26-billion-2021-04-12" target="_blank" rel="noopener"> company</a> is offering 6.81 million Class A shares in the IPO. The existing shareholders are offering 14.47 million Class A shares. At the high end of the IPO price of $50 per share, the total amount from the IPO proceeds would be $1.06 billion. After the IPO, there will be a total of 516.55 million Class A and Class B shares outstanding.At the high end of the IPO price range ($50 per share) the company could be valued at nearly $25.8 billion. This is below the company's recent private market valuation of <a href="https://www.usnews.com/news/technology/articles/2021-04-12/software-maker-uipath-aims-for-nearly-26-billion-valuation-in-us-ipo#:~:text=The%20New%20York%2Dbased%20company,funding%20round%20earlier%20this%20year." target="_blank" rel="noopener">$35 billion in February 2021</a><a href="https://www.usnews.com/news/technology/articles/2021-04-12/software-maker-uipath-aims-for-nearly-26-billion-valuation-in-us-ipo#:~:text=The%20New%20York%2Dbased%20company,funding%20round%20earlier%20this%20year." target="_blank" rel="noopener">, which was more than three times the value of its previous financing round in July 2020. </a>It appears that the recent tech IPO weakness has negatively impacted the pricing of UiPath's IPO as the implied valuation of $25.8 billion represents nearly 26% haircut from its recent private market valuation of $35 billion.The average % YoY change in sales in 2020 [A] for the major enterprise software/platform stocks was 46.8% in 2020 and UiPath's sales growth was nearly double the comps' average. The average operating margin [B] of the major enterprise software/platform stocks was -14.6% in 2020, which was slightly lower than UiPath's operating margin of -18.2%. The combination of [A] and [B] for UiPath was 62.6%, which was nearly double the figure for average of the major enterprise software/platform stocks (32.2%).

UiPath Inc (PATH US) plans to complete its IPO in the coming days. The IPO price range is between $43 to $50 per share. The company is offering 6.81 million Class A shares in the IPO. The existing shareholders are offering 14.47 million Class A shares. At the high end of the IPO price of $50 per share, the total amount from the IPO proceeds would be $1.06 billion. After the IPO, there will be a total of 516.55 million Class A and Class B shares outstanding.At the high end of the IPO price range ($50 per share) the company could be valued at nearly $25.8 billion. This is below the company's recent private market valuation of $35 billion in February 2021, which was more than three times the value of its previous financing round in July 2020. It appears that the recent tech IPO weakness has negatively impacted the pricing of UiPath's IPO as the implied valuation of $25.8 billion represents nearly 26% haircut from its recent private market valuation of $35 billion.The average % YoY change in sales in 2020 [A] for the major enterprise software/platform stocks was 46.8% in 2020 and UiPath's sales growth was nearly double the comps' average. The average operating margin [B] of the major enterprise software/platform stocks was -14.6% in 2020, which was slightly lower than UiPath's operating margin of -18.2%. The combination of [A] and [B] for UiPath was 62.6%, which was nearly double the figure for average of the major enterprise software/platform stocks (32.2%). 

On 2 December <a href="https://www.smartkarma.com/entities/orange-sa" target="_blank" data-smartkarma-citation="entities:21522:1" rel="noopener">Orange SA (ORA FP)</a> announced that it plans to launch a conditional voluntary public takeover bid on all the shares of Orange Belgium (in SK: <a href="https://www.smartkarma.com/entities/orange-belgium-sa" target="_blank" data-smartkarma-citation="entities:21340:1" rel="noopener">Mobistar SA (MOBB BB)</a> , BBG: OBEL BB) that it does not yet own.
<ul>
<li>Orange S.A. currently owns a 52.91% stake in Orange Belgium S.A.</li>
<li>Orange has stated the offer is conditional, but it has not disclosed what those conditions are.</li>
<li>
Consideration. €22 per share in cash.
<ul>
<li>For the remaining 28.3 million shares, representing a stake of 47.1%.</li>
<li>The offer represents 22.9x P/20E EPS, 5.4x EV/20E EBITDA and 10.9% EFCF yield for 2020E.</li>
</ul>
</li>
<li>There is no minimum acceptance threshold.</li>
<li>Should Orange acquire 95% of the total share capital and 90% of the outstanding minorities, it will initiate a squeeze out (under the same offer terms).</li>
<li>Orange has underlined that its announcement is the expression of an intention and does not constitute a formal notification of a voluntary public takeover bid.</li>
</ul>
On 3 December, shares of Orange Belgium shot up 35.3% and closed at €21.95. On 7 December, the shares closed at €21.80.
This announcement follows recent minority buyout attempts at Altice (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>), Iliad (see <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>) and maybe TalkTalk (see <a href="https://www.smartkarma.com/insights/talktalk-toscafund-preliminary-non-binding-proposal" target="_blank" data-smartkarma-citation="insights:44016" rel="noopener">TalkTalk - Toscafund: Preliminary &amp; Non-Binding Proposal)</a>. Read across: the news could also be supportive for other names in the sector where there is a minority free float.
The offer also represents c. 5.2x EV/NTM EBITDA and c. 20.1x P/NTM EPS vs. the median of comparable companies of 6.0x and 14.6x respectively.
Polygon has build a 5.05% blocking position (through 1,060,032 shares and 1,972,181 CFD).
<ul>
<li>"valuing the company on a range of 6 to 7.5 times EV/EBITDA (which is in line with the trading multiples of Orange Belgium's peers) would result in a price per share of 39.5 to 47.25 euros per share".</li>
<li>Taking the mid-point, that would be €43.375, 97.1% higher that Orange's offer.</li>
</ul>
The gross spread as of 7 December is 1%, which reflects the high probability of the transaction going ahead. For obvious reasons, it is difficult to think of interloper risk, so the cunning move by Polygon will catch some unaware.
Recommendation: LONG Orange Belgium, TP €35.13 per share (implied equity value across median multiple of comparable companies). Risk is that Orange gets cold feet.

On 2 December Orange SA (ORA FP) announced that it plans to launch a conditional voluntary public takeover bid on all the shares of Orange Belgium (in SK: Mobistar SA (MOBB BB) , BBG: OBEL BB) that it does not yet own.

Orange S.A. currently owns a 52.91% stake in Orange Belgium S.A.
Orange has stated the offer is conditional, but it has not disclosed what those conditions are.

Consideration. €22 per share in cash.

For the remaining 28.3 million shares, representing a stake of 47.1%.
The offer represents 22.9x P/20E EPS, 5.4x EV/20E EBITDA and 10.9% EFCF yield for 2020E.


There is no minimum acceptance threshold.
Should Orange acquire 95% of the total share capital and 90% of the outstanding minorities, it will initiate a squeeze out (under the same offer terms).
Orange has underlined that its announcement is the expression of an intention and does not constitute a formal notification of a voluntary public takeover bid.

On 3 December, shares of Orange Belgium shot up 35.3% and closed at €21.95. On 7 December, the shares closed at €21.80.
This announcement follows recent minority buyout attempts at Altice (see Altice - Next Private Takeover Announcement), Iliad (see Play Communications - Iliad: Offer Announcement) and maybe TalkTalk (see TalkTalk - Toscafund: Preliminary &amp; Non-Binding Proposal). Read across: the news could also be supportive for other names in the sector where there is a minority free float.
The offer also represents c. 5.2x EV/NTM EBITDA and c. 20.1x P/NTM EPS vs. the median of comparable companies of 6.0x and 14.6x respectively.
Polygon has build a 5.05% blocking position (through 1,060,032 shares and 1,972,181 CFD).

"valuing the company on a range of 6 to 7.5 times EV/EBITDA (which is in line with the trading multiples of Orange Belgium's peers) would result in a price per share of 39.5 to 47.25 euros per share".
Taking the mid-point, that would be €43.375, 97.1% higher that Orange's offer.

The gross spread as of 7 December is 1%, which reflects the high probability of the transaction going ahead. For obvious reasons, it is difficult to think of interloper risk, so the cunning move by Polygon will catch some unaware.
Recommendation: LONG Orange Belgium, TP €35.13 per share (implied equity value across median multiple of comparable companies). Risk is that Orange gets cold feet.

Contested Orange Plans to Takeout Orange Belgium

Founder/CEO of ROK Advisory, ROK Advisory LLC

Ken S. Kim

Founder/CEO of ROK Advisory

ROK Advisory LLC

ROK is an independent research advisory firm. We guide you to minimize the information gap between foreign and local investors in Northeast Asia with a focus in Korea, Taiwan and Japan.

Independent Research Advisory Firm

Equity Bottom-Up

<div>One of expected beneficiaries of the COVID pandemic has been the 5G supply chain in Korea with government increasing their 5G spend as well as the New Deal that included a sleeve for data that included AI, 5G and big data spend. </div>
<div></div>
<div>As investors clamored to these names, everyone forgot one thing - the actual fundamentals of these names.  <a href="https://www.smartkarma.com/entities/kmw-co-ltd" target="_blank" data-smartkarma-citation="entities:2834:1" rel="noopener">KMW Co Ltd (032500 KS)</a> , <a href="https://www.smartkarma.com/entities/ace-technologies-corp" target="_blank" data-smartkarma-citation="entities:7868:1" rel="noopener">Ace Technologies (088800 KS),</a><a href="https://www.smartkarma.com/entities/rftech-co-ltd" target="_blank" data-smartkarma-citation="entities:8820:1" rel="noopener">Rftech Co Ltd (061040 KS)</a> and <a href="https://www.smartkarma.com/entities/rfhic-corp" target="_blank" data-smartkarma-citation="entities:29206:1" rel="noopener">RFHIC Corp (218410 KS)</a> all rode the 5G wave as share price ran and turnover went beyond historical norms. </div>

One of expected beneficiaries of the COVID pandemic has been the 5G supply chain in Korea with government increasing their 5G spend as well as the New Deal that included a sleeve for data that included AI, 5G and big data spend. 

As investors clamored to these names, everyone forgot one thing - the actual fundamentals of these names.  KMW Co Ltd (032500 KS) , Ace Technologies (088800 KS),Rftech Co Ltd (061040 KS) and RFHIC Corp (218410 KS) all rode the 5G wave as share price ran and turnover went beyond historical norms. 

France

Orange SA provides telecommunications services to residential, professional, and large business customers. The Company offers public fixed-line telephone, leased lines and data transmission, mobile telecommunications, cable television, Internet and wireless applications, and broadcasting services, and telecommunications equipment sales and rentals.

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Orange SA (ORA FP)

Orange/Orange Belgium: Offer Re-Opening

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Orange Belgium - Orange: Final Offer and Holdouts

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Contested Orange Plans to Takeout Orange Belgium

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Jesus Rodriguez Aguilar

The 5G Problem - SELL Theme Themes

One of expected beneficiaries of the COVID pandemic has been the 5G supply chain in Korea with government increasing their 5G spend as well as the...

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