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.

Play Communications - Iliad: Offer Announcement

Altice - Next Private: Trading Above Terms

Altice - Next Private Takeover Announcement

Event-Driven

<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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<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>
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<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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<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>
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<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?