Orange sticks to its guns on Belgium as Polygon labours Picasso metaphor

Orange on Tuesday reiterated that €22-per-share is its final offer to minority shareholders of Orange Belgium, a figure that some insist does not reflect a fair valuation of the company.

Polygon Global Partners, which holds 5.29% of Orange Belgium’s share capital, has challenged the €22-per-share price tag on a number of occasions since Orange revealed it was working on a voluntary public takeover bid on all the shares of Orange Belgium that it does not already own in December last year. Its latest missive on the same theme came earlier this week when it once again accused Orange of undervaluing the Belgian business.

Essentially, it believes Orange has downplayed its growth prospects, exaggerated its projected costs, and wilfully ignored the value of its tower assets.

It is on this last point – the fact that Orange’s independent financial advisors have ascribed a value of zero to its Belgian towers portfolio – that Polygon’s argument turns…interesting.

“The argument that an asset does not have value simply because its potential owner does not intend to sell it astounds Polygon. We liken the tower portfolio to a prized Picasso. If a neighbour offered to buy your house and its contents — including your Picasso — would you agree to discount the value of the Picasso to zero simply because your neighbour claims they do not have plans to sell it?  The notion seems absurd,” Polygon writes, in its response to the publication of a report compiled by the financial advisors Degroof Petercam (DP).

“But, if Orange SA succeeds in its takeover bid at the current offer price, Orange Belgium’s shareholders who tender in the offer will lose the value of the company’s Picasso,” it insists. And there’s more:

“And it is a Picasso that Polygon believes Orange SA particularly covets. Orange SA has specifically articulated a value creation rationale for putting all of its French and Spanish towers into TOTEM,” it said, referring to the towers business Orange created in February. It goes on to point out that while towers companies currently trade at multiples of 15 to 20 times EV/EBITDA, Degroof Petercam has valued Orange Belgium at just 5x.

“Polygon estimates the value of the Picasso, as it were, could exceed €8 per share,” it said.

Polygon’s point, just in case you missed it in amongst that endless modern art metaphor, is basically that Orange is trying to pull a fast one with its Belgian towers, picking them up for nothing as part of the buyout deal.

Orange remained dignified in its response, reaffirming that there “is no hidden value” in the towers assets, without referring to Polygon’s diatribe. Amongst other things, “in Belgium, all operators benefit from the regulatory framework which provides for an obligation to share antenna sites at a regulated price since 2008,” it said. “This regulation sets the Belgian towers market apart from other European markets.” It also referred to its active and passive network-sharing deal with Proximus, and said all the above considerations are factored in to the €22 price. Further, it reiterated that the towers are not for sale to a third party, nor will they be wrapped into TOTEM.

“Orange does not intend to change the price of its offer and considers that this transaction offers all shareholders of Orange Belgium a unique opportunity to monetize their equity interest on attractive terms,” it concluded.

That seems pretty final. But it also seems unlikely that Polygon will change its stance, given how much bigger a sum it is looking for for its shares.

That €8-per-share valuation figure for Orange Belgium’s Picasso towers is just the tip of the iceberg; the company actually believes the telco could be worth twice as much as Orange is willing to pay. A valuation report it commission from investment bank Ondra puts “Orange Belgium’s shares, on a standalone basis, in a range between €32 and €36 per share, with the possibility of a value of up to €45 per share in the case of a partial or total monetization of its telecom towers,” it said.

“Although Polygon’s analysis has now been updated to take into account Orange Belgium’s business plan through 2024, it continues to believe that that the company is worth more than €40 per share and that the €22 per share offer from Orange SA is derisory,” it said.

Looks like no one is blinking first on this one.