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Anyone hoping for significant consolidation in the Spanish telecoms sector was disappointed by MasMovil’s approach for Euskaltel last month. Joining the country’s fourth and fifth-largest networks together is unlikely to boost returns for long-suffering investors in the sector.
The market would have preferred Vodafone to have combined its Spanish operations with those of Orange Spain, or MasMovil. The €11.17 per share bid valued the regional Basque operator at a smallish €3.4bn including net debt.
Shareholders in Telefónica communicated disappointment by dropping the incumbent Spanish operator’s shares down 4 per cent in response. Reduced competition for mobile subscribers and bigger shareholder payouts will have to wait.
Euskaltel adds about 3 per cent of the retail market but most of this is from broadband. Sticky revenues justify a price 10 times this year’s ebitda, above what private equity buyers paid for MasMovil lin 2020.
Last year, Euskaltel launched aggressive sales of broadband and mobile packages nationally under the Virgin group logo. These additional customers support expectations of revenue growth of 8 per cent this year. That will strengthen MasMovil’s own rapid broadband growth, built off fibre assets acquired from Orange, a divestment required by watchdogs when Orange bought Jazztel in 2015. Low cost deals lured away subscribers from incumbent Telefónica.
Share price performances have diverged since then. Strong relative growth and plans to spin off a stake in its broadband business has boosted Euskaltel shares by 26 per cent from the summer of 2019 up to the end-March MasMovil bid. Telefónica shares have shed 60 per cent over that time. Telefónica has stated it hopes revenue growth will return by 2022.
A combination of MasMovil and Euskaltel will not make that target any easier to achieve. Spain’s four mobile network operators are intact and MasMovil remains the challenger. Hints that tariff discounting had moderated at the end of last year led to expectations for a more rational market. That call remains on hold.
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