Note: This post was written before Iliad bought Kinnevik’s stake in Tele2. I did not intend to write anything more about Tigo at least until something new happened. But here we go anyway, buckle up. As has already been announced by the company, Q4 will contain a lot of one-offs, such as severance pay. Naturally, I don’t have more insight than anyone else on those parts, beyond what is already public. Likewise for other possible impacts, such as the costs incurred from a recent ransomware attack in Paraguay (early in Q1, though) or legal costs in Guatemala or otherwise. I do however think we can get some clues on the operational side from recent reports by other companies. So with a large risk of looking like a mug, I will attempt that.
It was even better than I had dared to hope. Guatemala was a surprise to the upside on margin and they have taken more price increases in Q1 AND made more cost cutting that is not fully visible yet. Panama was amazingly strong with the B2B customer intake. Colombia was extra strong on margin while customer intake took a bit of a breather. Overall, the read-acrosses I had from competitors were quite instructive and the amazing cost cutting program is doing wonders in addition to that.
Forward guidance on operations was extremely bullish. However, if you account for one-offs and such it looks like they may still be too conservative with the updated guidance
No Lati announcement yet as I had hoped and thought, but I think there is no reason to worry about that.
All in all, both the results improving so quickly and the communication indicates that Atlas intends full alignment with the outside shareholders. This also make sense when considering the Tele2 purchase; antagonizing minority investors in Sweden (and elsewhere) seems like it would be a bad business decision when you are suddenly controlling two Swedish listed entities. Note that Iliad's CEO has already said that they are not looking to take out Tele2 and they structured the purchase of shares as to avoid tripping the mandatory bid threshold, while maximizing the economic interest.
The relatively large bond repurchases with long maturities and low rates point in the direction that there will not be a private takeover of Tigo any time soon. I think they are visualizing an extremely stable entity that can issue new bonds at good terms. Perhaps a combination with Tele2 would now instead make more sense and aid that goal? That way you can also eliminate double listing costs, the useless American listing, even more management layers and it could provide a faster way to unlock deferred tax assets. And mr Lombardini could review the costs at Tele2 when he is done with Tigo.
Even though they emphasized bond repurchases and the discounts help towards the deleveraging target, I would still expect them to find a way to make further stock buybacks in the coming months, if nothing major changes. Lati, other possible asset sales and some extra room against a conservative guidance should permit that.
On Iliad's and Xavier Niel's purchase of control in Tele2
I think the timing of the announcement of the Tele2 deal is not a complete coincidence. It has been unofficially for sale for a long time and officially since the chairman of Kinnevik "slipped up" a month ago or so and told Affärsvärlden. Either the chairman already knew they would sell and knew the buyer at that point or he was in far-along negotiations and tried to entice other possible buyers by his off-hand comment. So I think there is a strong possibility that Iliad wished for today specifically to be the announcement day. I don't think it's wise to elaborate further on that, but I wanted to state it for the record.
Strategically, it's interesting for all kinds of reasons. Tele2 is underleveraged and that will likely change. It opens up the possibility for M&A both in-market and in new markets. You can think of all kinds of permutations, both involving Niel's current business interests and possible new ones. Whatever happens structurally will have to satisfy criteria of capital efficiency and tax efficiency. Secondarily, I would of course assume that he has some view on the competitive vulnerabilities in Tele2's markets.
On the Q4:
It was even better than I had dared to hope. Guatemala was a surprise to the upside on margin and they have taken more price increases in Q1 AND made more cost cutting that is not fully visible yet. Panama was amazingly strong with the B2B customer intake. Colombia was extra strong on margin while customer intake took a bit of a breather. Overall, the read-acrosses I had from competitors were quite instructive and the amazing cost cutting program is doing wonders in addition to that.
Forward guidance on operations was extremely bullish. However, if you account for one-offs and such it looks like they may still be too conservative with the updated guidance
No Lati announcement yet as I had hoped and thought, but I think there is no reason to worry about that.
All in all, both the results improving so quickly and the communication indicates that Atlas intends full alignment with the outside shareholders. This also make sense when considering the Tele2 purchase; antagonizing minority investors in Sweden (and elsewhere) seems like it would be a bad business decision when you are suddenly controlling two Swedish listed entities. Note that Iliad's CEO has already said that they are not looking to take out Tele2 and they structured the purchase of shares as to avoid tripping the mandatory bid threshold, while maximizing the economic interest.
The relatively large bond repurchases with long maturities and low rates point in the direction that there will not be a private takeover of Tigo any time soon. I think they are visualizing an extremely stable entity that can issue new bonds at good terms. Perhaps a combination with Tele2 would now instead make more sense and aid that goal? That way you can also eliminate double listing costs, the useless American listing, even more management layers and it could provide a faster way to unlock deferred tax assets. And mr Lombardini could review the costs at Tele2 when he is done with Tigo.
Even though they emphasized bond repurchases and the discounts help towards the deleveraging target, I would still expect them to find a way to make further stock buybacks in the coming months, if nothing major changes. Lati, other possible asset sales and some extra room against a conservative guidance should permit that.
On Iliad's and Xavier Niel's purchase of control in Tele2
I think the timing of the announcement of the Tele2 deal is not a complete coincidence. It has been unofficially for sale for a long time and officially since the chairman of Kinnevik "slipped up" a month ago or so and told Affärsvärlden. Either the chairman already knew they would sell and knew the buyer at that point or he was in far-along negotiations and tried to entice other possible buyers by his off-hand comment. So I think there is a strong possibility that Iliad wished for today specifically to be the announcement day. I don't think it's wise to elaborate further on that, but I wanted to state it for the record.
Strategically, it's interesting for all kinds of reasons. Tele2 is underleveraged and that will likely change. It opens up the possibility for M&A both in-market and in new markets. You can think of all kinds of permutations, both involving Niel's current business interests and possible new ones. Whatever happens structurally will have to satisfy criteria of capital efficiency and tax efficiency. Secondarily, I would of course assume that he has some view on the competitive vulnerabilities in Tele2's markets.
Private and Confidential
very useful to read your update and even more fun to follow into the tangential areas.
global telecom is still in a long slump, what do you think about majors far outside the G7 ?
although a takeover premium will never exist, KT and TLK look the most interesting.
How do you think the stake in Tele 2 affects this thesis and possible outcomes in Millicoms case?
Thanks for another great post