Zegona Communications Share Discussion Threads

[hugepants] 29/3/2021 11:03

copied from MVI thread;

davebowler29 Mar '21 - 10:29 - 1654 of 1655
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Liberum;
Significant NAV uplift from Euskaltel bid

Mkt Cap £61m | Prem/(disc) -33.1% | Div yield 2.1%

Event

Masmovil yesterday announced a takeover bid for Euskaltel worth almost €2bn. Euskaltel is a quad-play telecoms provider in the North of Spain The largest shareholder in Euskaletel is Zegona Communications, which is the biggest position in MVI's portfolio. Zegona accounts for approximately 33% of MVI's NAV (based on Friday's closing price).

Zegona's large shareholding in Euskaltel originated when it sold Telecable to Euskaltel in 2017 in a cash and share transaction.

Masmovil's offer of €11.17 per share in cash for Euskaltel has the agreement of 52.3% of shareholders. The offer price represents a 16.5% premium to Friday's closing price. The offer is conditional on receiving at least 75% acceptance. The transaction values Euskaltel at 10.1x EBITDA and 21x operating cash flow.

Liberum view

A transaction between Masmovil and Euskaltel has been speculated for a number of years. Assuming the takeover completes, the transaction should be highly accretive for Zegona shareholders. Based on Friday's closing price, Zegona's market cap is £207m and the company's 21.4% stake in Euskaltel is valued at €428m (£363m) at the offer price. Zegona also has a small net cash position resulting in an underlying asset value per share of 170p (80% premium to Friday's price). Zegona’s share price has risen by 32% so far this morning. We would expect the majority of capital received by Zegona to be returned to shareholders.

[pireric] 29/3/2021 10:52

The management scheme was, the Marwyn one was not. However, the management scheme is contingent on AGM approval in a few months time.

It would be harsh, but shareholders could just tell management to stuff it and tell them to liquidate the company to unlock 170p, ha. Some smart institutional shareholders could bunch together to enact that if they wanted out or wanted to crystallise a 50p/40% gain from here. That's a nice downside backstop.

Eric

[flyfisher] 29/3/2021 10:48

Felix , The fifth anniversary of the management incentive scheme should have been 14/05/20, unless it has been extended.

[tiltonboy] 29/3/2021 10:42

I've added. Surely the arbs will come out to play!

[pireric] 29/3/2021 10:29

The Marwyn scheme expired worthless. And based on the share price today, the Zegona management one isnt going to be overly punitive!

Still struggle to see how fair value today is under 145p minimum on an all in basis including a healthy discount to NAV. All things said and done, the Euskaltel transaction was pretty successful given there is also a special dividend along the way

Give it a few weeks and see where this shakes out. When holdings become crystallised, like is the case here, only takes a couple of merger arb investors to get interested to close the discount more materially


Eric

[felix99] 29/3/2021 10:26

You have got to remember both MVI and ZEG mgt have their noses in the trough here before shareholders see any cash. Secondly you have no idea if the cash is to be returned or they use it for a new investment.

Incentive Scheme

Incentive scheme arrangements were put in place at Zegona's inception in 2015 to create incentives for Zegona's management team and for Marwyn as the original core shareholder of Zegona. Members of Zegona's management team have been issued Class A Ordinary Shares in the Company's subsidiary, Zegona Limited ("Management Shares") in connection with their employee arrangements and Marwyn was issued Class B Ordinary Shares ("Core Investor Shares").



Management Incentive arrangements

The holders of the Management Shares are entitled to 15% of the growth in value of Zegona during a series of separate Calculation Periods, provided that ordinary shareholders achieve a 5% Preferred Return in each Calculation Period. The first Calculation Period began on 14 August 2015, with management having the right to redeem its Management Shares at any time between the third and fifth anniversaries of this date.

[stemis] 29/3/2021 09:35

Really excellent news - and worth c.176pps for ZEG at current exchange rates acc' to my quick calcs???

Does this take account of the management incentive arrangements?

[skyship] 29/3/2021 09:31

"There will always be sellers on a 32% rise".....indeed. I took the turn in my personal a/c; but am holding in my SIPP.

Thnx Tilts. Without your contributions to the thread I don't think I would have participated; just left the value to accrue to MVI, where I actually have a smaller holding!

[skyship] 29/3/2021 09:31

"There will always be sellers on a 32% rise".....indeed. I took the turn in my personal a/c; but am holding in my SIPP.

Thnx Tilts. Without your contributions to the thread I don't think I would have participated; just left the value to accrue to MVI.

[pireric] 29/3/2021 09:29

I suspect what the share price does will be important, cart. You could sense the frustration of top management that the share price lingered below where was justified by NAV for a long time.

On one hand, might prompt them to liquidate. On the other hand, they might look at the Euskaltel ROI they generated and just fuel them to go again. Either way, dont think this trades at more than a 15% discount to current NAV so 145p min

Eric

[cartmans_mom] 29/3/2021 09:26

Nice!!! What will Eamonn do with all that money?

[74tom] 29/3/2021 09:22

There will always be sellers on a 32% rise, absolutely inevitable. Interesting that for a few moments it was 125p to buy and 127.4p to sell, suggests we won't stay at this level too long.

[pireric] 29/3/2021 09:22

Eezy

Difference between Zegona closing to fair value and Euskaltel doing so. Euskaltel's share price isnt showing any deal concerns, just the usual merger arb discount. Zegona still has a seller, but actually makes this an even more attractive merger arb opportunity (potentially). Cannot see why this doesnt trade up to at least 145p, not least because it shows the management team here is credible and can generate an attractive ROI.

Eric

[tiltonboy] 29/3/2021 09:04

Bizarrely, there is still a seller around!

[eezymunny] 29/3/2021 08:55

Mr Market somewhat disbelieving. Perhaps the 6 months process? Regulatory/competition review?

Buyer seems to be Spain's 4th biggest telco, so you'd think would understand the competition issues.

MVI/MVIR in almost complete denial :)

All a bit strange esp given that the door is apparently still open to competing offers?

[value hound] 29/3/2021 07:28

Really excellent news - and worth c.176pps for ZEG at current exchange rates acc' to my quick calcs???

Also, cash removes worries value seekers may have had about the underlying investment - so the discount should be negligible?

[dekle] 29/3/2021 07:26

All our recent questions have been answered, thank you Zegona

[rimau1] 29/3/2021 07:16

Excellent news, well done Zegona, i wonder if they have a new investment lined up. Value always outs eventually, what a nice start to the week!

[tiltonboy] 28/3/2021 14:44

MVI will be looking to monetise their investment, no doubt to try and invest in another SPAC ahead of the continuation vote later in the year. Likewise with the Le Chameau holding.

Things are looking good for Euskaltel, and therefore by proxy for ZEG. I would happily take EKT shares in specie, and let ZEG look for another acquisition.

No idea why the buy-back isn't still operating!

[cerrito] 28/3/2021 14:02

I guess the future of MVI's 18.95 stake in Zeg is the factor. Incidentally the only change of holdings RNS since last July has been for a minuscule change in the FIL holding.
Anyone have an insight into what is happening with buybacks?
In June they announced a programme to last to the earlier of September or when they had spent £10m.
In September when they did their last buyback they said they had spent £3m.
On October 8th they told us they were looking to close the discount.
Since then...nothing

[tiltonboy] 26/3/2021 19:15

MVI factor

[badtime] 26/3/2021 18:10

...too many already?

[red ninja] 26/3/2021 12:58

Pounds per euro heading down ?

[flyfisher] 26/3/2021 12:52

Since december the share price has declined about 14%, whereas the underlying share value in euskaltel has increase by about 5%, an interesting disconnect.

Any opinions why?