The majority shareholder in Colt Group has made fellow investors a take private offer valuing the fibre operator at £1.7bn (US$2.7bn).
Fidelity’s 190p per share offer is a 21.3% premium on Colt’s closing price yesterday, and 34.4% over the last 12…
The majority shareholder in Colt Group has made fellow investors a take private offer valuing the fibre operator at £1.7bn (US$2.7bn).
Fidelity’s 190p per share offer is a 21.3% premium on Colt’s closing price yesterday, and 34.4% over the last 12 months, but the company’s independent directors are not biting.
Fidelity and its affiliates, which hold a 66.6% stake, must request an EGM enabling shareholders to vote on removing an agreement capping its ownership at 75%. The firm would need to reach 80% ownership to delist Colt, and 95% to force a final squeeze-out.
Fidelity said Ruffer LLP and Standard Life Investments, which together own 7.8% of Colt, had both already accepted the offer.
In a statement from Colt, the directors –advised by Barclays – said the offer undervalues the company and its prospects and therefore was not fair to smaller shareholders, who together hold 33.39% of the telecoms services provider.
However, the directors stopped short of telling investors to reject the £569m (US$903m) offer and conceded that some shareholders may view the offer as reasonable given the company’s circumstances.
Commenting on behalf of Fidelity, Cyrus Jilla, president of its affiliated investment arm Eight Roads, said: “As founders and majority shareholders of Colt, Fidelity is pleased to announce the continuation of its commitment to the business through returning the group to private ownership.”
Explaining the rationale for the transaction, Jilla said: “We typically hold our proprietary investments outside the financial services industry, such as Colt, in the private domain.
“This transaction allows us to hold our investment in Colt consistent with this strategy while providing an attractive and certain value for the current Colt independent shareholders.”
Fidelity is advised by JP Morgan.
Offer could be minority investors’ best bet
Analysts at Citigroup estimate the offer is equal to 7.0x 2015 EV/EBITDA, much lower than the low teen figures achieved by contemporaries in recent M&A transactions.
While much of the B2B fibre market is booming, Colt has underperformed compared to its peers. Management has been working on a new strategic plan, set to be announced soon. The directors believe this could lead the company to command a higher valuation in future.
Sale to third party possible, but unlikely
Today the directors called on Fidelity reconsider its stance on a sale to a third party. The US investment house has committed to “not sell or take any other steps to dispose of its Colt shares to any third party prior to 31 December 2016”.
The directors said that unless Fidelity changed tack, there was “no prospect of obtaining that additional value for shareholders”.
Citigroup analysts were sceptical: “There is a small chance that this offer flushes out a trade bid, but given the length of time that the company has been available for an approach we would not place a high probability on this.”
The Fidelity offer exceeds Citigroup’s 175p target price and the analysts, who have a buy rating on the stock, suggested the minority shareholders may not get a better offer.
“Our buy case on Colt is predicated upon its asset value, a result of heavy investment over many years which the company has consistently fallen short of converting into strong financial performance,” the analysts added.
The European B2B fibre sector has heated up in recent years, with US-based Zayo buying up Geo in the UK and Neo Telecoms in France, and private equity-backed Eurofiber among trade players implementing roll-ups. Experts predict that consolidation will take place first on a national level, with Europe-wide leaders emerging in the medium term.
Colt, for its part, has been seen as a target, but a sale will only happen with the blessing of Fidelity.
