If someone can make this deal work, then it is Debt King John Malone.
The billionaire-chairman of Liberty Global Plc. is the engineering of a takeover of Millicom International Cellular SA by Liberty Latin America Ltd., the unit that he closed last year.
Although a bid at first sight resembles the debt of Liberty Latin America, further research shows that the financing is practically feasible.
Millicom has considerably less debt than Liberty. That gives Malone the opportunity to lean on the balance strength of the goal to finance a substantial part of the deal.
An offer at a 25 percent premium over the average stock price of the past quarter would rate Millicom at around $ 12 billion, including assumed net debt.
In the current circumstances, it is expected that Millicom will have a net debt at the end of 2019 equal to 1.9 times Ebitda. It could cover approximately 5 times net loans, representing approximately $ 7.5 billion of additional debt capacity. That would leave $ 4 billion in stock to find.
Malone has ways to close the gap. With Liberty's profit the coming year will be expanded, but it also has room to seek more financing as the debt ratio falls. It could offer some shares as part of a bid – some Millicom shareholders could welcome the likelihood of exposure to Latin America. In fact, the prospect of divestments in Africa, which Millicom has been claiming for years and could achieve a top dollar of $ 1 billion, could remove some of the debt pain.
The major unavoidable is the role of Kinnevik AB, the Swedish investor that owns 40 percent of Millicom. Cristina Stenbeck, Kinnevik's biggest shareholder, told the Financial Times in 2017 that she wanted to focus more on Europe and Scandinavia. This suggests that it would be open to such an exit, mainly because selling the shares on the open market would lower the price. A spokesman told Bloomberg News that Kinnevik would evaluate the terms of an offer.
Concerns for Millicom investors may be that the chance of a bidding war seems small. Strategically, Liberty is the most obvious connection. Although there is cross-over in markets such as Panama and Costa Rica, the footprint is largely complementary, with Liberty focused on the Caribbean and Millicom on Central and South America. Evercore ISI analysts said Liberty's subsea network could help lower Millicom's costs. And the combined purchasing power would be advantageous if the industry entered the investment cycle of the 5G network.
But that also suggests that Liberty's bid may be opportunistic. Millicom is still growing with a healthy clip. RBC Capital Markets analyst Julio Arciniegas expects Millicom's net profit to rise to $ 741 million in 2022, an increase from the $ 186 million consensus estimate for 2018.
If Millicom, whose CEO Mauricio Ramos formerly led Liberty Latin America, can not get an auction going, its defense depends on making the individual case. And be prepared to say no to his former boss if the offer is not right.
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Alex Webb is a Bloomberg Opinion columnist about the European technology, media and communication industry. He previously dealt with Apple and other technology companies for Bloomberg News in San Francisco.
Chris Hughes is a Bloomberg Opinion columnist who deals with similarities. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.
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