This business move would result in the merger of Telefónica (Movistar) and Tigo, as well as Millicom's control over Tigo Une.
A new business novel would be about to begin in Colombia. It was recently learned that Millicom (provider of fixed and mobile telecommunications services in Latin America, as well as one of the owners of Tigo - with 50% of the shares), formalized its intention to buy the shares that Telefónica has in Coltel ( Telefónica Colombia -Movistar-).
As reported by the company, based in Luxembourg, both Telefónica and Millicom signed a non-binding memorandum of understanding (which translates into an informal agreement that establishes the bases for future negotiation), through which this possible purchase is established. shareholding.
Regarding the industry, and the consumers of these services, the news is that Tigo and Movistar could merge in Colombia.
This would be one of the most important businesses in the recent history of Colombia, as it would involve an investment of close to US$ 400 million.
But Millicom's appetite does not end here, as this telecommunications company also announced its intention to buy the stake that Empresas Públicas de Medellín (EPM) currently has in Tigo Une (which is 50% plus one share, which allows it to occupy today the role of controlling shareholder) in order to retain the entirety of this operator.
“Millicom plans to fund the proposed aggregate investment of approximately US$1 billion in cash and assumed debt with projected free cash flow over the next 18 months, in line with the company's long-term plan.
The transaction is subject to the negotiation and signing of definitive agreements with all parties involved, including Telefónica, La Nación and EPM, as well as obtaining regulatory and competition authorizations, and meeting other closing conditions. There is no certainty that the transaction will finally be completed,” the company detailed.
According to Millicom, if these businesses are completed, the telecommunications sector in Colombia could be “rejuvenated,” since the resulting company would be robust and with significant scaling capacity, as it would have sufficient financial capacity to advance the investments that are required. regarding networks and spectrum.
“The country would gain a second large-scale and financially viable operator at a crucial time. This strengthened operator would boost the digitalization of Colombia, ensure broader access to modern digital services throughout the country and advance the deployment of fiber and 5G technologies throughout the country, thus enabling faster, more reliable services and a better experience for the client,” he concluded.
Regarding this eventual merger, Telefónica highlighted that the formalization of the business will depend on the signing of definitive agreements, as well as obtaining the corresponding regulatory approvals and the extension of the offer by Millicom to the national government.
The latter already happened, since on Wednesday morning the Colombian Ministry of Finance reported that Millicom extended its intention to acquire the aforementioned shares (of which 32.5% correspond to the nation).
“The Nation-Ministry of Finance is analyzing the proposal and will report its position when the respective strategic and financial study is completed,” the portfolio stated.
For Telefónica, it is key that in a market that is characterized by its high level of concentration (such as the Colombian case) it gains scale and, for this, he adds, it is positive that an actor with greater size, networks and offers in benefit of users.
“In the short term, we will continue to focus on achieving the ambitious objectives that we have set for ourselves in Colombia and we will continue to operate as we have been doing, offering the best services to our clients as has been the case until now. In the rest of Latin America, we will maintain the same focus on growth and profitability, and looking for strategic alternatives to continue offering the best services”; Telefónica concluded.
IS TIGO FOR SALE?
Millicom's proposal seems to come at an opportune time, since recently the mayor of Medellín, Federico Gutiérrez, submitted to the council a draft agreement that proposes the sale of the shares that EPM has in Tigo.
This initiative is not new, since in previous administrations it had already been put on the table of the council, being rejected. For Gutiérrez, this time could be the charm, since the panorama is different.
It must be remembered that the telecommunications sector is not going through its best moment. As explained by sources consulted by this medium, this is mainly explained by two reasons.
The first is the drop in ARPU (average revenue per user) that operators have experienced, which has translated into less revenue; The second is the high level of investment that, at this moment, the industry is demanding (especially in the extension of new networks now that the deployment of the 5G network has begun).
Proof of this is that Tigo was on the verge of entering into business reorganization last year, as it was at risk of failing to comply with the financial commitments made.
To keep the company afloat, a capitalization of $600,000 million (US$147.4 million) was required, of which $300,000 million (US$73.7 million) was contributed by Millicom and the other $300,000 million by EPM.
There is also the case of WOM, which did enter into business reorganization and which today also demands an injection of resources (close to $400,000 million or US$98.2 million) to avoid falling into bankruptcy.
In short, for the Colombian public administration, Tigo currently represents more of an expense than an income opportunity, which is why the sale of its shareholding becomes attractive.
However, it must be taken into account that this type of company (in the long term) provides periodic income, which would be stopped in the event of a sale. All these elements are what should be taken into account when evaluating the proposal that Millicom would formalize in the coming days.
THIS IS HOW THE SHARE CAKE IS DISTRIBUTED
To have a clearer picture of this business, and more so in the context of a Public Acquisition Offer (OPA, which is the vehicle that would be used to purchase the shares), it is necessary to understand the shareholding of both companies.
As reported by Telefónica, the company in Colombia today has more than 3,400 million shares, of which Telefónica Hispanoamérica SA is the majority shareholder, with 67.4% of these.
The second largest shareholder is the Nation (through the Colombian Ministry of Finance), which has 32.5% of the shares. The rest of the pie is distributed among small shareholders, which also includes Radio Televisión Nacional de Colombia (RTVC), with 0.0003% of these.
In the case of Tigo, EPM has 50% plus one share of the company, while Millicom has the remainder.
