Altimo’s $3.7bn buy-out offer undervalues Orascom Tel

By Una Galani/Dubai

 Altimo is taking a cheap shot at Egypt’s Orascom Telecom Holding. The firm controlled by Russian billionaire Mikhail Fridman has offered to buy out minorities in the Cairo-listed operator, which has interests sprawling from Bangladesh to Canada. The bid values the firm at $3.7bn, a 10% premium to the current market value. If a dispute with Algeria over Orascom’s most profitable asset, Djezzy, is resolved soon, that will look measly.

The Russian firm is offering 70¢ for each Orascom share. Regional broker Prime Holding calculates that amount is equivalent to around half the multiple of EBITDA of recent transactions by Orascom, and a 20% discount to the operator’s sum of the parts. A higher valuation looks increasingly realistic amid signs that Algeria is ready to end the two-year-old dispute over Djezzy, which is independently valued at $6.5bn and provides 60% of Orascom’s operating EBITDA.

The move on Orascom, already half-controlled by Altimo subsidiary Vimpelcom, looks like a pre-emptive attempt by the Russian firm to capture more of the potential upside from Djezzy for itself. Investors were expecting Vimpelcom to lead a buyout - but only after the Djezzy dispute was settled.

The reason for Vimpelcom’s parent making the move is unclear. Vimpelcom is busy reducing its net debt, but the $20bn firm could afford to buy the shares it doesn’t already own and still hit its leverage targets for 2015, say analysts at Citi.

Altimo may be planning a broader restructuring of its own telecoms interests or Vimpelcom could gain from the buyout in the future. Egypt’s regulator, which has delayed a number of M&A deals post-uprising for political reasons, should scrutinise the relationship between Altimo and Vimpelcom.

Minority shareholders should be nervous. Orascom could be left with low liquidity without a delisting. France Telecom’s local unit Mobinil is already listed in Cairo with almost no free float. But the low-ball offer might not get far, especially as the government has recently introduced a new capital gains tax. Only those desperate to exit troubled Egypt will be tempted.

CONTEXT NEWS

n Russia’s Altimo has submitted an application to tender an offer for Cairo-listed Orascom Telecom Holding, Egypt’s Financial Supervisory Authority said on March 31. The offer values the firm at 70¢ per share or $3.7bn.

nAltimo owns more than half of Vimpelcom, which in turn owns 52% of Orascom. Vimpelcom has said it will not sell its stake under the offer.

nIf the offer is approved by Egyptian regulators, the price will be converted into Egyptian pounds for locally-held shares based on the official exchange rate two days before the settlement. The Egyptian pound has lost 10% of its value since the start of 2013.

n Orascom is listed in Cairo but the majority of the company’s share capital is represented by global depositary receipts.

n The firm’s business in Algeria, also known as Djezzy, accounts for around 60% of Orascom’s EBITDA. Orascom has no material operations in Egypt. The Algerian government has announced its intention to take a controlling stake in Djezzy.

nEgypt’s regulator is reviewing Altimo’s tender offer.

The author is a Reuters Breakingviews columnist. The opinions expressed are her own