Telecoms provider Colt Group will mothball its IT services unit and focus on its core business of offering network, voice and data centre services.
The strategic shift, which had been in the works for some time, comes 11 days after Colt’s largest…
Telecoms provider Colt Group will mothball its IT services unit and focus on its core business of offering network, voice and data centre services.
The strategic shift, which had been in the works for some time, comes 11 days after Colt’s largest shareholder, fund manager Fidelity, bid to take the company private.
Colt’s board of directors said the offer undervalued the company based on what it believed the new business plan could deliver for the London-based firm.
The board, however, stopped short of recommending shareholders reject the proposal. The directors conceded some shareholders might find the offer, a 34.4% premium on Colt’s weighted share price over the past year, as reasonable given the company’s circumstances.
Fidelity has said its offer took into account the potential upside from the new business plan, and that its 190p per share offer – which values Colt at £1.7bn (US$2.7bn) – was final.
Colt’s new strategy will see the telecoms provider exit the IT services market over the next two to three years. The company said the division would continue to need considerable investment in the short-to medium term in order to deliver profit, and therefore it does “not believe this business can compete and grow successfully with a level of risk that is acceptable”.
Colt said it expected to incur exceptional cash costs of €45m (US$50.3m) to €55m (US$61.5m) and a write-down of around €90m (US$101m). It also anticipated spending €25m (US$27.9m) to re-orientate the company around its new core business.
“We anticipate around €25m (US$27.9m) of annual savings related to this restructuring to be reflected in core business EBITDA partially in 2015 and fully in 2016,” the company added.
Colt’s management predicts its core business will deliver €70m (US$78.3m) to €80m (US$89.5m) in positive free cash flow for full year 2015, and that this will rise to €100m (US$112m) to €120m (US$134m) in 2016.
Rakesh Bhasin, Colt’s CEO, said: “We are taking decisive action to become a more focused and disciplined organisation which we believe will accelerate the performance of our core business.
Bhasin said he was confident Colt would be able to deliver improved profitability and cash returns for shareholders.
Fidelity is being advised by JP Morgan on its offer. 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 has said Ruffer and Standard Life Investments, which together own 7.8% of Colt, had both already accepted the offer.
Colt’s board, advised by Barclays, have asked Fidelity to 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”.
In the wake of Fidelity’s offer, 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.
