Rebel shareholder wants an extra €1 billion for Masmovil

Masmovil’s proposed takeover bid undervalues it by around €1 billion according to one of its smaller investors.

Polygon Global Partners, which holds a minority stake of below 3% in the Spanish telco, has been vocal in its objections to the deal, which was first announced in June.

A consortium of private equity funds consisting of Providence, Cinven and KKR made a €22.50-per-share bid for Masmovil, which values it at close to €3 billion. The Masmovil board set about touting for a better offer, but none emerged, and the deal has been given the green light by both directors and Spain’s stock market regulator the CNMV. Close to 30% of Masmovil shareholders have indicated their support for the deal, which requires 50% acceptance to go ahead.

In its latest missive against the deal, published earlier this week, Polygon insists that the Masmovil valuation report prepared by PwC – and taken into consideration by the CNMV when it examined the proposed transaction – was deeply flawed. Indeed, Polygon believes the report undervalues the telco by as much as €7-€8 per share. That equates to around €1 billion, which is a sizeable amount of money by anyone’s standards.

Polygon highlighted a number of areas in which it believes PwC made incorrect assumptions. It believes the firm has: overstated Masmovil’s capex requirement for 2021 and beyond; incorrectly analysed its working capital transformation; undervalued the synergies generated by its acquisition of Lycamobile; and compared the telco to other companies – and other deals – where it was not appropriate to do so.

As an aside, Masmovil completed the acquisition of MVNO Lycamobile Spain a couple of months ago, the value of the takeover ultimately coming in at €361 million. That deal adds around 1.5 million customers to Masmovil’s base, which according to the latest statistics from telecoms regulator the CNMC gives it north of 9 million mobile customers and makes it a much more credible competitor to the big three: Telefonica’s Movistar, Orange and Vodafone.

Polygon detailed its objections to the private equity takeover in a letter to the CNMV, its second such epistle in recent months. It requests that the regulator “procures all necessary amendments and clarifications to guarantee that the Bid and the agreements reached by the Bidder with certain significant shareholders of the target company are compliant with applicable law.” Or to put it another way, to make sure the whole deal is above board. It also reiterates its intention to not accept the bid in its current guise.

“We consider, taking into account the Bid’s terms, that the Bidder is undervaluing Masmovil and is not offering to its shareholders the possibility to sell at an equitable price, and consequently, that the lack of success of the Bid is the best option for their interest,” Polygon said. It also reminded other shareholders that they could be forced to sell their shares, at the current offer price, if the conditions are met for a squeeze-out and de-listing.

And therein lies the rub. Alone, Polygon has very little muscle to derail the deal; as a shareholder with less than 3% it is not listed on Masmovil’s investor site, but the Spanish business press reports it holds just 1.02%. Polygon needs to convince fellow minority shareholders to follow its lead and reject the offer if it wants to secure a higher price for its asset.