always a bit late, morningstar now has fair value at $30, but "more" if towers and fintech separated. shout out again to keith smith of bonhoeffer; has been the most judicious in covering this name the past few years.
Here is my speculation: given the time this is taking: the board is driving a harder bargain than might have been expected at the outset. Niel ideally wants to take the company in one bite should he tender for all of it. To do this he will need board approval for the bid. So from his perspective it needs to be high enough to do that.
The board has time on its side given the progression of the tower separation, so the longer the process takes the higher Niel should be willing to bid, all else equal. That is, until it is too late to do a takeout before the tower transaction is upon us.
With this dynamic, I think your guess is on the low side if a bid materializes. If not, I can't see why Niel wouldn't try to buy more shares aggressively over the market at some near point in time.
Another thing to keep in mind here is that the nomination committee is finishing up its work now and soon there will be an AGM. The 13D takes on additional importance in light of this and that Atlas thus far has not made known whether they want on the board. Being on the board of course would complicate both a bid for the company and buying shares in the open market, but it's likely a somewhat potent threat towards current board members and management.
I suppose the current stock price, even considering the current macro and financial conditions in the world, kind of discounts a takeover bid in the near future. Would you say the most likely outcome in the coming months is an announcement of failed talks with Apollo, and a steep decline down to 160-170 SEK?
I can't see the board "ending talks" to whatever extent they are actually ongoing without Niel first taking board seats and forcing the issue. Him taking board seats would however complicate whatever ambition he has to acquire more shares. A 20% stake would seem to be too low for him from my perspective no matter if he ultimately makes a buyout offer. So it remains to be seen if that happens this year. The convening notice for the AGM should probably be out any day now and we will see how the proposed board looks.
Naturally, no outcome that is dependent on financing conditions will be entirely unaffected by a potential bank crisis or whatever it is that we have on our hands now.
But no, I don't see it happening like that. Niel can find a way to end the so-called talks but that would be because he is interested in buying more shares himself. I'm not sure what the current board, or management or Apollo gain from issuing a press release that talks have ended.
Board and management I get why they're hanging on, but why Apollo? They still hoping to get a slice of the company or Tower co? My gut still believes the most likely scenario is that Niel with or without a consortium takes the company private, probably before summer. I also believe he'll be able to acquire most shares with a first bid of 250 SEK.
But let's say that when the proposed board comes out, there's people from Atlas included, does this indicate that Niel is in it for the long haul, with Millicom remaining public?
It would probably tilt it towards a slower strategy, yes. My sense is that going on the board mainly just complicates things at this point and that (perhaps counterintuitively) if he wanted to just hold about his current stake, there was no use in going above 20% in the first place. So, laying the puzzle and keeping the towers in mind, it doesn't add up for me why he would be done positioning himself yet. Macro of course can always change things for acquirers, but my hunch would be that it's not yet bad enough to have altered whatever plans he has *only* for that reason. So if he's not grabbing board seats, that would incline me towards a fast sequence of events. If he is, I have to admit that I find that scenario harder to predict.
As for why Apollo sticks around, I guess why not? No downside to it for them. There is a reputational value in *not* just going away tail between your legs. You mean business when you are trying to make a deal and won't be bullied. And they could be angling for some kind of "bribe" to go away, yes.
Thanks for your fantastic coverage of the Millicom story! Have one question;
Do you think Xavier has the muscle to take the entire company private? I realize he's a rich guy, but isn't exactly easy to borrow the amount of money needed, even if you succeed in keeping the debt in place.
Impossible to know exactly how much he has at the tip of his fingers, but yes I'm sure that he can finance a buyout.
Iliad is certainly not a small company, he owns a bunch of other telecoms through NJJ, his wife Delphine Arnault is the daughter of one Bernard... And if that net worth is not enough I'm sure his board buddies at KKR could be interested in pitching in. That is, if Apollo doesn't end up getting a stake in the end.
Iliad bid $15B for TMUS back in 2014 and his net worth has only grown since.
Also, depending on the price he pays, there won't be need for that much capital employed if the proceeds from the towers almost immediately come out when it's time.
Do you know when they have to disclose that the takeover talks are over, if that happens? Is there like a timeframe, say within 24 hours after both parties have left the table?
Probably as promptly as possible. As far as I can tell, it's only in Niel's potential interest to sabotage talks, though. Board wants the stock price as high as possible and Apollo wants to stay and see if they can get something.
There is, but for now I would guess that he is acting alone. However, that doesn't mean he can make Apollo "leave". They can hang around if they want to, but will gradually fade in relevance as Niel's holding increases if he doesn't want to cooperate.
What would you say is the probability of a takeover bid in the near future? I must say I’ve become a lot more doubtful. It was quite clear from the 13D that Xavier is not going to bid for the whole company. And Apollo will most likely back away. Right?
Luxco likely won't bid. But Xavier Niel might, maybe through Iliad. As for near term, depends on how you define that. I think it makes sense to try something in good time before the tower transaction is scheduled towards the end of the year.
Not likely that Apollo can do anything without pairing up with Niel, although neither the BOD nor Apollo seem to have any incentives to back away from "bid discussions", so that may be why the limbo persists. Might be ongoing discussions now since Niel doesn't seem to be in the market buying thus far this week.
Would you say that the biggest obstacle in way of a successful takeover still is the debt? Trying to keep it in place, and not having to renegotiate it. Assuming that Apollo gets Niel to play ball.
A lot of PE takeovers the last year have been successful in keeping existing debt structures in place.
The Fitch rating update before the Q4 report more or less blessed a takeover, by removing the possibility of a rating downgrade. They can keep the old financing.
What they can't do is saddle the company with a bunch of additional debt due to the bond covenants. That might limit the premium that an acquirer is able to pay in the short term.
Thank you! What do you see as the most likely outcome going forward? Say the next two months. Will Apollo keep at it, trying to make a bid for the company?
I think this is all about Niel. I think he will either keep buying shares over the next few months or make a bid for the entire thing, with or without Apollo. If he gets to his limit in Luxco, which might be either 25% or 33% and the price stays the same, then a bid is next up imo.
Apollo is lingering for a chance to get a piece of the cake or not show themselves to be pushovers, but this is not ultimately in their hands. I don't think there as been any real progress with their bid at all since Niel started buying more quickly.
Great post! What happens in case Niel goes above the mandatory bid level by Millicom buying back shares? In this case does he have to make an offer at all?
Thanks! Mandatory bids are only triggered by active purchases. If the owner gets over the threshold through the backdoor via Millicom buying back shares, then an additional purchase of 1 share will trigger a mandatory, which can't be avoided unless going below 1/3 subsequently. Long way to get there yet.
Thanks! So the best case scenario for Niel would be for TIGO to buy itself on the cheap after getting close to 1/3. What is the mandatory squeeze out hurdle in Luxembourg? Someone would have to get enough shares to block such a squeeze out and be willing to let minorities participate in the potential upside (not someone like Elliott - see Rocket Internet). This is a fascinating investment case!
90% for tenders. I think Swedish and American institutional owners hold enough shares for this not to become a complete take-under. But might need another significant owner with more skin in the game to get all the juice out of this one.
I wouldn't be so sure. A triangular merger with threat of delisting gives most plain vanilla investors cold feet as they cannot or doesn't want to hold illiquid shares (see Boskalis and HAL Trust or the Teslin/KKR and Accel transactions)
I'll look into those, thanks. As for the final merger price here, I'm trying to do my bit in getting the word out about what the stock should be worth to continuing owners. Hopefully it can have some impact.
I admire your work! We are on the same page: the rights of minority shareholders (true owners of the business) should be respected to the fullest and it is shameful that something like a triangular merger is even allowed in its current form in Europe!
impressive detective work.
keep reminding all of the min. $40 value !
always a bit late, morningstar now has fair value at $30, but "more" if towers and fintech separated. shout out again to keith smith of bonhoeffer; has been the most judicious in covering this name the past few years.
Keith is a bright guy!
Great part 2 update !! Just curious, why u reckon Niel was (is) buying the SDR (swedish depository receipt) instead of the US Nasdaq listed TIGO ?
Way more volume in the SDRs, that's the original listing.
What do you believe the most likely price for a first tender offer would be now? 25 USD?
Not an entirely simple question to answer.
Here is my speculation: given the time this is taking: the board is driving a harder bargain than might have been expected at the outset. Niel ideally wants to take the company in one bite should he tender for all of it. To do this he will need board approval for the bid. So from his perspective it needs to be high enough to do that.
The board has time on its side given the progression of the tower separation, so the longer the process takes the higher Niel should be willing to bid, all else equal. That is, until it is too late to do a takeout before the tower transaction is upon us.
With this dynamic, I think your guess is on the low side if a bid materializes. If not, I can't see why Niel wouldn't try to buy more shares aggressively over the market at some near point in time.
Another thing to keep in mind here is that the nomination committee is finishing up its work now and soon there will be an AGM. The 13D takes on additional importance in light of this and that Atlas thus far has not made known whether they want on the board. Being on the board of course would complicate both a bid for the company and buying shares in the open market, but it's likely a somewhat potent threat towards current board members and management.
I suppose the current stock price, even considering the current macro and financial conditions in the world, kind of discounts a takeover bid in the near future. Would you say the most likely outcome in the coming months is an announcement of failed talks with Apollo, and a steep decline down to 160-170 SEK?
I can't see the board "ending talks" to whatever extent they are actually ongoing without Niel first taking board seats and forcing the issue. Him taking board seats would however complicate whatever ambition he has to acquire more shares. A 20% stake would seem to be too low for him from my perspective no matter if he ultimately makes a buyout offer. So it remains to be seen if that happens this year. The convening notice for the AGM should probably be out any day now and we will see how the proposed board looks.
Naturally, no outcome that is dependent on financing conditions will be entirely unaffected by a potential bank crisis or whatever it is that we have on our hands now.
But no, I don't see it happening like that. Niel can find a way to end the so-called talks but that would be because he is interested in buying more shares himself. I'm not sure what the current board, or management or Apollo gain from issuing a press release that talks have ended.
Board and management I get why they're hanging on, but why Apollo? They still hoping to get a slice of the company or Tower co? My gut still believes the most likely scenario is that Niel with or without a consortium takes the company private, probably before summer. I also believe he'll be able to acquire most shares with a first bid of 250 SEK.
But let's say that when the proposed board comes out, there's people from Atlas included, does this indicate that Niel is in it for the long haul, with Millicom remaining public?
It would probably tilt it towards a slower strategy, yes. My sense is that going on the board mainly just complicates things at this point and that (perhaps counterintuitively) if he wanted to just hold about his current stake, there was no use in going above 20% in the first place. So, laying the puzzle and keeping the towers in mind, it doesn't add up for me why he would be done positioning himself yet. Macro of course can always change things for acquirers, but my hunch would be that it's not yet bad enough to have altered whatever plans he has *only* for that reason. So if he's not grabbing board seats, that would incline me towards a fast sequence of events. If he is, I have to admit that I find that scenario harder to predict.
As for why Apollo sticks around, I guess why not? No downside to it for them. There is a reputational value in *not* just going away tail between your legs. You mean business when you are trying to make a deal and won't be bullied. And they could be angling for some kind of "bribe" to go away, yes.
Hi!
Thanks for your fantastic coverage of the Millicom story! Have one question;
Do you think Xavier has the muscle to take the entire company private? I realize he's a rich guy, but isn't exactly easy to borrow the amount of money needed, even if you succeed in keeping the debt in place.
Impossible to know exactly how much he has at the tip of his fingers, but yes I'm sure that he can finance a buyout.
Iliad is certainly not a small company, he owns a bunch of other telecoms through NJJ, his wife Delphine Arnault is the daughter of one Bernard... And if that net worth is not enough I'm sure his board buddies at KKR could be interested in pitching in. That is, if Apollo doesn't end up getting a stake in the end.
Iliad bid $15B for TMUS back in 2014 and his net worth has only grown since.
Also, depending on the price he pays, there won't be need for that much capital employed if the proceeds from the towers almost immediately come out when it's time.
Do you know when they have to disclose that the takeover talks are over, if that happens? Is there like a timeframe, say within 24 hours after both parties have left the table?
Probably as promptly as possible. As far as I can tell, it's only in Niel's potential interest to sabotage talks, though. Board wants the stock price as high as possible and Apollo wants to stay and see if they can get something.
Is there a possibility Niel doesn’t want to sabotage the talks? As in he is open to cooperation with Apollo?
There is, but for now I would guess that he is acting alone. However, that doesn't mean he can make Apollo "leave". They can hang around if they want to, but will gradually fade in relevance as Niel's holding increases if he doesn't want to cooperate.
wouldn't u reckon that a takeover bid (by APO / Claure parties) would most certainly involved Xavier given his ownership stake ?
Yes, if Apollo is even a live actor still. I've said more about that in the other comments here.
What would you say is the probability of a takeover bid in the near future? I must say I’ve become a lot more doubtful. It was quite clear from the 13D that Xavier is not going to bid for the whole company. And Apollo will most likely back away. Right?
Luxco likely won't bid. But Xavier Niel might, maybe through Iliad. As for near term, depends on how you define that. I think it makes sense to try something in good time before the tower transaction is scheduled towards the end of the year.
Not likely that Apollo can do anything without pairing up with Niel, although neither the BOD nor Apollo seem to have any incentives to back away from "bid discussions", so that may be why the limbo persists. Might be ongoing discussions now since Niel doesn't seem to be in the market buying thus far this week.
Would you say that the biggest obstacle in way of a successful takeover still is the debt? Trying to keep it in place, and not having to renegotiate it. Assuming that Apollo gets Niel to play ball.
A lot of PE takeovers the last year have been successful in keeping existing debt structures in place.
The Fitch rating update before the Q4 report more or less blessed a takeover, by removing the possibility of a rating downgrade. They can keep the old financing.
What they can't do is saddle the company with a bunch of additional debt due to the bond covenants. That might limit the premium that an acquirer is able to pay in the short term.
Thank you! What do you see as the most likely outcome going forward? Say the next two months. Will Apollo keep at it, trying to make a bid for the company?
I think this is all about Niel. I think he will either keep buying shares over the next few months or make a bid for the entire thing, with or without Apollo. If he gets to his limit in Luxco, which might be either 25% or 33% and the price stays the same, then a bid is next up imo.
Apollo is lingering for a chance to get a piece of the cake or not show themselves to be pushovers, but this is not ultimately in their hands. I don't think there as been any real progress with their bid at all since Niel started buying more quickly.
Great post! What happens in case Niel goes above the mandatory bid level by Millicom buying back shares? In this case does he have to make an offer at all?
Thanks! Mandatory bids are only triggered by active purchases. If the owner gets over the threshold through the backdoor via Millicom buying back shares, then an additional purchase of 1 share will trigger a mandatory, which can't be avoided unless going below 1/3 subsequently. Long way to get there yet.
Thanks! So the best case scenario for Niel would be for TIGO to buy itself on the cheap after getting close to 1/3. What is the mandatory squeeze out hurdle in Luxembourg? Someone would have to get enough shares to block such a squeeze out and be willing to let minorities participate in the potential upside (not someone like Elliott - see Rocket Internet). This is a fascinating investment case!
90% for tenders. I think Swedish and American institutional owners hold enough shares for this not to become a complete take-under. But might need another significant owner with more skin in the game to get all the juice out of this one.
I wouldn't be so sure. A triangular merger with threat of delisting gives most plain vanilla investors cold feet as they cannot or doesn't want to hold illiquid shares (see Boskalis and HAL Trust or the Teslin/KKR and Accel transactions)
I'll look into those, thanks. As for the final merger price here, I'm trying to do my bit in getting the word out about what the stock should be worth to continuing owners. Hopefully it can have some impact.
I admire your work! We are on the same page: the rights of minority shareholders (true owners of the business) should be respected to the fullest and it is shameful that something like a triangular merger is even allowed in its current form in Europe!