What can happen to Tim
We need to build “the true value” of TIM. Arnaud de Puyfontaine, managing director of Vivendi and first shareholder of the Italian telecommunications group intervenes on the single network affair, which is plastering the future of the company and sending the value of the shares to a sinking point, returning almost to the values of February.
To achieve TIM’s objectives, “a new chapter” is needed, says the CEO during his presentation of the French company’s accounts and prospects. “We left the positions of directors” to be more independent and we want the group to have “its true value”, adds de Puyfontaine during the meeting.
But a report by the financial group ODDO Securities states that the alternative route of the spin-off of Tim’s activities, scenario which Vivendi might prefer, would not allow the French “to derive better value, as the level of evaluation of the buyers is known to the markets, and they could even apply a discount, with the risk that the time for an acquisition has already passed”.
Offers for the single network
ODDO Securities has deepened the Netco affair, also in view of the publication of Tim’s first quarter accounts, for which they expect group sales to grow by 7%. The Cdp-Macquarie offer envisages an enterprise value for NetCo of 19.3 billion, that of KKR of 21 billion, with an earn-out of 2 billion in the event of a merger with Open Fiber.
“We calculate – the analysts explain – that by selling 100% of NetCo, Telecom would obtain an amount more or
less equivalent in both cases, equal to 16.8-17.1 billion (as KKR probably includes a higher valuation for FiberCop, of which it already owns 38%). This would carry debt, excluding leases, to approximately 3 billion and the net debt/EBITDAaL ratio to approximately 1.5 after the sale. According to our calculations, the valuation per share amounts to 0.47 euro per share with 19.3 billion and 0.55 euro per share with 21 billion”.
What Vivendi risks
“By maintaining a firm attitude towards NetCo – underlines ODDO -, Vivendi runs the risk of bankruptcy or of being subjected to government intervention. An offer that values a telecommunications operator at 10-11 times the EBITDA is interesting and could allow Vivendi to hope for a potential revaluation of Service Co (consolidation scenario). But Vivendi – they continue – seems to remain intransigent on a valuation of NetCo that institutional investors consider widely dated (over 20 years)”.
“Vivendi – the analysts continue – probably hopes for valuations of tower or infrastructure companies that benefit from other factors (clearer visibility with less regulation, consolidation leading to synergies). This position clearly puts the divestment of NetCo at risk in the context of a vote through an extraordinary meeting, but Telecom’s board will have the possibility to validate one of the offers, enter into exclusive discussions and then directly accept an offer without a meeting of shareholders if it fears a blocking move by Vivendi. This is probably not the preferred course of action by Telecom Italia’s board and management but, in our view, it is important to bear in mind the possibility of political pressure to force an agreement”.