European Event-Driven Analyst

Jesus Rodriguez Aguilar

Jesús is an Insight Provider (Event-driven) on the Smartkarma network, where he looks across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations. He has served as Economic and Business Advisor at the Spanish Congress in Madrid. Prior to that, he has worked in the City of London: as a Credit Analyst at Bloomberg; Event-driven associate at former boutique European Research; and doubled as Special Situations and Equity-linked VP (convertible bonds) at Merrill Lynch. Jesús has an MBA from the London Business School, a BA (Hons.) degree in Economics from the Complutense University in Madrid, and a BA (Hons.) in Law from U.N.E.D., also in Madrid.

HAL Holding/​Royal Boskalis Westminster: Offer Launch & Precedent of Orange/Orange Belgium

HAL Holding/​​Royal Boskalis Westminster: Sweetened Offer

Contested Orange Plans to Takeout Orange Belgium

TalkTalk - Toscafund: Preliminary & Non-Binding Proposal

Play Communications - Iliad: Offer Announcement

Event-Driven

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