TheChek News Flow

Orange for Jazztel (JAZ SM)

Low downside, bump to the offer?

PDF attached

 

This is an update to prior notes. Orange has today received clearance by the EC for their purchase of Jazztel. This was a pre-condition to opening the offer.

 

What now?

 

The CNMV received the merger prospectus draft in October 2014 but as of yet, has not cleared the draft offer documents.

Once the draft documents are accepted, the CNMV has up to 20 working days to approve the prospectus. Extensions to the review timing are also possible if the CNMV needs more information.

When the CNMV approves the offer documents, then Orange can open the offer to acceptances within 5 working days. The merger can then remain open to acceptances between 15 and 70 calendar days per law.

Orange believes that the CNMV will approve the offer documents within days and that they will be able to complete the offer early H2 2015.

 

If the CNMV takes the statutory maximum (20 working days) to approve the offer document, then the earliest completion would be late July 2015 and the latest completion could be late September 2015.

 

 

The offer will be conditional on receiving 50%+1 acceptances to the offer and Orange already has irrevocables amounting to 14.7%

 

Orange can also make Jazztel purchases on market at any time but the consequence would be that Orange would then void the minimum acceptance condition.

 

Orange can make changes or modification to the offer terms up to 5 days before closing of the offer period. We have argued that the terms on offer do not look as attractive as they did when the offer was launched.

 

Varied reasons support the argument of a bump to terms

1) The quarterly results beat estimates by 21pct at the eps level 

2) All the convergence metrics continue to show improvement

3) Telefonica increased prices to their bundle package Movistar Fusion by €5 and the Spanish competition authority said it is not anticompetitive

4) minority shareholders are already requesting a review to the offer price

 

Jazztel’s operating performance over the past months support the view that without MnA, Jazztel could be trading in line with peers. The Jazztel approach was 9 months ago.  Vodafone or Telefonica, both up 12pct over the same period indicates Jazztel could be trading at c Eur12 per share. The SXKP index (Euro telco index) is up 25% over that period. The Eur13 offer now looks low or put it another way, the downside looks limited and the upside seems ignored.

 

At the Jazztel AGM yesterday, minorities requested an improvement to offer price is examined. We note that attendance was very low at 38% partly because there were no important resolutions to approve but also because there has been a migration in ownership from traditional institutions to event driven funds (who by large only vote when there are important resolutions to support or block).

 

Granted, it may not be easy to get Orange to pay more. They are looking for a minimum of 50% approvals. Orange has 14.7% irrevocable obtained from Mr Pujals and Credit Suisse has another 8.3% (who sits behind that holding? we do not know). Also there is no evident activist to push for an improvement to terms since Alken left the stock but event driven funds control a large stake and long only funds in the stock may also consider that Eur13 per share no longer looks adequate.

 

At current share price Jazztel annualised return is 2.5% to 25 July 2015.

 

Makor Securities London Ltd is authorised and regulated by the Financial Conduct Authority (FCA registration number 625054) of Dover House, 34 Dover Street, London W1S 4NG.

Makor Capital, company number 514456466, is incorporated in Israel and is a 100% held subsidiary of Makor Holdings Pte Ltd incorporated in Singapore.

Makor Capital Markets SA, company number CH-660.2.999.011-0 is incorporated in Switzerland and is also a 100% held subsidiary of Makor Holdings Pte Ltd.

AIM&R is incorporated in Switzerland; company number CH-660.1.533.997-8