Telecom Italia likely to privilege cash over partial share offers for Inwit stake
* Auction process could launch this weekend
* Suitors may require financing partner for all-cash offers
* Cellnex considering M&A scenarios; EI Towers cash call an option
Telecom Italia (TI) [BIT:TIT] will likely privilege cash offers for the c.40% stake in Infrastrutture Wireless Italiane (Inwit) [BIT:INW] it is looking to sell over partial share approaches, according to a source and a person familiar with the situation and three bankers.
The sale is set to be organized as a structured process, the source and the person said. TI is expected to kick off an auction over the weekend by sending an invitation, which will be followed by an information memorandum, the person added.
TI has no interest in receiving shares of other companies via the Inwit transaction, the person noted. TI declined to comment.
Holding a 60% stake in Inwit at present, TI wishes to retain a direct position in the asset so as to have a degree of control over its operations while reducing debt, the bankers said. TI’s stance is consistent with these goals, they added. Any partial share deal would see TI hold a further indirect Inwit stake via the shares of the successful suitor, which the Italian player would have to mark to market, they said.
Spanish Cellnex [BME:CLNX], Italian EI Towers [BIT:EIT] and US American Tower [NYSE:AMT] have been indicated as potential bidders for the stake in recent reports.
Trading at EUR 4.73 per share, 40% of Inwit is worth EUR 1.13bn at market prices. But Italian law stipulates that any offer for more than 25% of Inwit would trigger a mandatory public offer on the remainder of its shares.
With TI wanting to retain a 20% stake in Inwit, it cannot simply tender the stake into the public offer, one of the bankers noted. However, this would still effectively mean suitors would need to line up financing for an 80% stake, worth EUR 2.26bn. TI listed Inwit in June 2015, raising EUR 780m at EUR 3.65 per share by selling a 40% stake.
The risk for TI is that all-cash offers would likely lack a premium to Inwit’s share price as the company is richly valued, the first banker said. Against this potential scenario, TI might be better off accepting a share component in the offer, he added.
Inwit trades at a premium to domestic peers, EI Towers and Raiway [BIT:RWAY], and in line with international competitors Cellnex and American Tower, which have greater scale, this banker noted. Inwit currently trades at an EV/EBITDA multiple of 21.44x, while EI Towers, Raiway, Cellnex and American Tower trade at 15x, 12.63x, 21x and 18.6x, respectively.
If TI is looking for a further control premium of around 30% on top of market value, the deal ticket could become challenging for the likely bidders, the first banker said he believed. At this premium, the company would be valued at EUR 3.67bn while the 40% stake would be worth EUR 1.47bn; 80% would be worth EUR 2.94bn.
The potential suitors have varied net debt/TTM EBITDA leverage ratios, with Cellnex at 4.36x, EI Towers at 0.93x and American Tower at 5.37x, according to Dealreporter analytics.
Cellnex has considered making a play for all of Inwit, based on one-third paper, one-third equity linked bonds and a one-third cash financing package, this news service previously reported. A person familiar with the Spanish group said the company's M&A team is analysing a number of scenarios internally while it waits to take a decision on which target it should pursue.
Even to meet a premium to market value for the 40% stake, Cellnex may wish to look for the support of an investor such as F2i, a fourth sector banker said. F2i, reportedly interested in Inwit, is well engaged in most Italian towers deals and has the resources to push a transaction towards a conclusion, he added. Cellnex and F2i declined to comment.
Reserving a capital increase for an investor might ease the financing burden for any suitor, explaining why both F2i and private equity group Providence have been flagged as interested in Inwit, the source said.
Cellnex would likely find a good partner in F2i due to its discrete approach as a minority investor, the second banker said. By contrast, Providence is renowned for being a proactive investor, willing to have a say on the strategy of the companies in which it invests, he noted.
EI Towers would certainly struggle to digest Inwit's acquisition if acting alone, the source noted. The latter has a market cap of just EUR 1.58bn.
EI Towers offered a mix of cash and shares in its failed attempt to take over Raiway in 2014. Last year, it also bid for Wind’s tower portfolio Galata, only to lose out to Cellnex's higher offer, the source added. EI Towers declined to comment.
Providence could suit EI Towers as a partner given the latter’s higher cash requirement and potentially higher interest in compromising, the second banker said. An alternative for EI Towers would be to undertake a capital increase or join forces with Fininvest, partner of its owner Mediaset [BIT:MS], he said.
Fininvest, which controls 33.49% of the broadcasting group, is strongly interested in investing in the towers business to diversify from its exposure to media, according to this banker. However, Fininvest has thus far shown no interest in such an investment, a person familiar with the holding said. A spokesperson for Fininvest declined to comment.