On the eve of
Millicom adds another catalyst in Colombia
Not a lot has actually changed around Millicom in the last two months. Hopefully this will be my last post on the subject.
Tomorrow is the AGM, which will likely be a dull, scripted affair like so many other AGMs. Niel has approached almost the 25% that I speculated that he might want to own in Atlas due to tax efficiency. The market has been extremely accomodative to him and not given any due to his retained interest in purchasing shares. Initially, I clearly overestimated the weight that the market would put on him continuing to buy.
The Q1 report admittedly was a cold shower operating wise. Niel made a few supportive comments to Bloomberg. I interpreted that at the time as him wanting to support the price a bit, due to his financing situation. Since then however, I think I have come to the conclusion that Atlas is now borrowing from its mother NJJ which may in turn be borrowing from Iliad, which in its turn has access to major borrowings and cash flows. So Niel probably doesn’t need the share price to stay above a certain level necessarily. But he has tended to come back into the market on every price weakness, presumably because he likes the stock. The trading strategy of going slow and steady cannot be deemed anything but a giant success if the goal was to get to 25% right around the AGM. Here we are and the price as of close today is well below his average price paid; the market seems to be more afraid that the bid put is disappearing than intrigued that Niel keeps buying.
A major positive that is developing right now is the situation at Tigo Colombia. I’m not going to recount all that has been said and done here, just read this Twitter thread and the attached articles if you are interested: https://twitter.com/gilmourkh/status/1662504964344672257?s=20
Long story short: I think the situation is gearing up to end in, at the very least, an attempt to merge Tigo Colombia and achieve a more balanced market structure. The best merger partner would of course be Telefonica (Movistar), but any significant move from the status quo is positive. Colombia is a bad market and has been a bad market forever. The city of Medellin actually made a good deal when they sold to Tigo back in 2014 (before current management). Lately, the business has incrementally grown a bit better with Tigo getting more spectrum and building fixed assets, but the margins are still awful. The current market structure just doesn’t allow an adequate return for anyone at all but America Movil. This should be a problem for the regulators too, as they would want companies who can afford and actively want to build out coverage.
A restructured Colombia, population 52 million, and gdp/capita of above $6k (Guatemala $5k, pop. 17 million), has the potential to be a value driver significantly exceeding the tower spinoff. It may sound crazy now, and I realize Millicom owners are a jaded bunch. But if you start throwing the numbers around a bit it gets obvious fairly quickly. Additionally, they are also looking to monetize fiber assets in Colombia too, as Telefonica did last year by entering a JV with KKR. This hard catalyst will certainly help highlight the values in Colombia for the skeptics.
The man of the hour in this is mayor of Medellin, Daniel Quintero, who has been trying to sell the public ownership in the company ever since his election three years ago. Blocked from this by the city council, I see no real downside in him eventually helping to push for a merger instead as the next best thing. The shares would become more valuable and more liquid and the resulting company may start throwing off dividends soon, for the city to use as they please. There is only upside for the public coffers. Maybe he needed the political cover of the suggested recapitalization to be able to say yes to such a proposal. If so, so be it. As Mauricio Ramos said on the Q1 conference call on the question of consolidation in Colombia: “The answer is yes. I mean the answer is not only yes, but it is now.”
And how does Xavier Niel figure into this? Given that this additional catalyst now seems to be materializing in relatively short order, it seems even more farfetched that he would wait around a long while before trying to get more shares. Why be a total cheapskate? It makes no sense if you already see the clear value to not try and get in front of its realization. I can’t make a precise prediction on when exactly things will happen, but I still think the equity should be worth at least about $40 to a rational control owner, and I’m just as convinced as earlier that Niel thinks so too.
So, if I were eating a croissant somewhere in The City of Light early tomorrow morning, and thinking about making the final mating move in this drawn out chess game, I would probably be saying to myself “the answer is not only yes, but it is now”. And then I would flash a big grinning smile.
Tigo Colombia and Movistar (Telefonica) just signed an MOU around network sharing, meaning they will pool their infrastructure assets in what sounds like a JV structure. This will ease the cost burden around capex and spectrum purchases and could in the future conceivably allow a multiple arbitrage, since pure-play infra assets are considerably more sought after.
While not a full merger, this looks like it could be a game changer for the tough Colombian market, if approved.
https://comunicacionestigo.com/prensa/?p=578
The situation with EPM does probably relate, and I'm sure the near future can clear up exactly how.
Since I’m not on Twitter I’ll write you here.
Xavier won’t start buying until June 30th. Believe that could put significant downward pressure on the stock.
Found this last night:
“Commencement Date” means the Trading Day immediately following the date which is 30 calendar days following the date hereof.
“Purchase Period” means the period from, and including, the Commencement Date to, and including, the Completion Date.
Seems common to have a cooling period like that:
Companies may want to require a period of time to separate the establishment of a Rule 10b5-1 plan and the execution of trades pursuant to the plan. Although the absence of possession of MNPI at the time of plan adoption is the threshold question, rapid transaction executions subsequent to plan adoption may create an appearance of impropriety and call into question whether a plan adopter had MNPI at the time of plan adoption. Brokers administering plans frequently impose a seasoning period as part of their own trading practices, but companies also adopt these policies. A fourteen day period is often used, but many companies have increased the waiting period to about one month.