LJUBLJANA (Slovenia), June 16 (SeeNews) – The Slovenian government should reassess its privatization strategy if the attempt to sell Telekom Slovenije [LJE:TLSG] to UK private equity fund Cinven falters, a Ljubljana-based analyst said on Tuesday.
Also on Tuesday, Cinven said conditions are no longer in place to proceed with the acquisition after a solution to deal with the uncertainty around the merger of the telco's Macedonian operations could not be agreed with Slovenian state holding company SDH.
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However, the equity fund made it clear it remains interested in the privatization of Telekom Slovenije and is open to re-evaluate the situation in the coming weeks, once the outcome from the merger process in Macedonia is clarified.
"I believe that if the deal falters, the government should evaluate its sale strategy. Some mention listing on an international exchange. I believe it [Telekom Slovenije] should optimize operations, exit Macedonian markets and try to reverse some negative trends regarding its market share. And then possibly more interest could be found for Telekom Slovenije. But I recognize this is a hard task for a state enterprise," Saso Stanovnik, head of research at investment company Alta Invest, told SeeNews in an email.
On Monday, SDH, which coordinates the privatization process in the country, said it does not accept the additional conditions imposed by Cinven for the acquisition of a 72.75% stake in Telekom Slovenije.
SDH has said the additional conditions set by Cinven represented too great a risk and could lead to an unjustified reduction in the purchase price but that it was still ready to complete the transaction under the conditions approved by its supervisory board on June 10.
In April, SDH said a single binding bid had been handed in for the sale of the stake in the incumbent telco. Cinven later confirmed it had placed the offer.
Last Wednesday, SDH said its supervisory board had approved the sale of the telco stake to Cinven, subject to certain conditions.
SDH said at the time it received on June 9 amendments to the revised binding offer by Cinven, which were not considered by the supervisory board because the conditions from those amendments were not acceptable for the managing board.
Earlier on Wednesday, Cinven issued a statement saying that since submitting its best and final offer for the acquisition of Telekom Slovenije on May 22, it was informed on June 1 by SDH of further unexpected delays in the antitrust approval processes and completions of the Debitel acquisition and Macedonian operations merger by Telekom Slovenije.
On Thursday, Cinven said it considers the amendment an integral part of the offer, without which Cinven would not be able to proceed towards completing this transaction.
Telekom Slovenije closed down 5.85% at 93.3 euro ($105.6) on the Ljubljana bourse on Monday, giving the company a market capitalization of 609.8 million euro.
Stanovnik said he believes Cinven pushed too far with risk sharing mechanisms. "Their bid in terms of EBITDA multiple was not high enough to be additionally hampered by different risk transfers to existing owners. Also all issues in Macedonia are true, as well as risks, however, this was known before the first offer. It took time for the state entities to accept the first offer, it was therefore logical any additional lowering of the price (albeit most likely temporarily) will be impossible to accept."
Should the deal with Cinven collapse, Alta Invest expects Telekom Slovenije's stock price to slump to 80-85 euro over the short term.
"The additional risk is very low liquidity during the summer months. This implies enterprise value/EBITDA of 4.2 on trailing-twelve-months data. In the autumn and winter everything would depend on [the company's] results and thereby dividend expectations. This year Telekom Slovenije paid 10 euro per share and while it’s hard to expect this level of dividend payment to continue, it should still provide a generous amount. This above-average dividend yield could, in time, lift the stock back to current levels," Stanovnik said.
While the Cinven bid was still being assessed both the government and the SDH showed reluctance to take full responsibility for the sale decision, passing it back and forth between themselves.
"It’s very clear that selling non-optimized operations and having politicians meddling and prolonging the process is counterproductive and clearly negatively for pricing," Stanovnik said.
In 2013, Telekom Slovenije was placed on a list of 15 state firms earmarked for privatization.
Cinven, set up in 1977, has offices in Guernsey, London, Frankfurt, Paris, Milan, Luxembourg and Hong Kong.
($=0.8837 euro)