Euskaltel: Zegona showing its hand
Zegona announced last Friday its intention to launch a tender offer to acquire 14.9% of Euskaltel’s (EKT) capital at a price of €7.75, a premium of 18% vs EKT’s undisturbed share price. The move, if successful, would lead Zegona to become EKT’s top shareholder with a 29.9% stake. Zegona has in the past voiced its opposition to some of the strategic options of EKT management, and thus this move is not completely surprising, especially in the context of EKT’s depressed share price. Even if successful, it is unlikely that Zegona will get a majority of seats on the board, but definitely its weight in the group will rise and so should its influence over future strategic decisions. With a stated strategy of ‘Buy-Fix-Sell’, in a typical Private Equity approach, we think Zegona’s goal is to boost EKT’s share price, either by lobbying for more aggressive operational growth or exploiting consolidation opportunities; thus their interest should be aligned with those of minority shareholders. Naturally this offer provides important support to EKT shares; but ultimately we stick to our fundamental view on the company – laid out in our October 3rd report ‘Seeing beyond the short term’ – thus we reiterate our BUY recommendation and €9.2 FVEuskaltel SA is a Spain-based company engaged in the provision of integrated telecommunication services. The Company's activities are divided into three segments: Residential, Business, as well as Wholesale and Other. The Residential segment provides fixed and mobile telecommunication services, broadband and wireless Internet, as well as digital television (TV) as a single service and in packages. The Business division primarily offers fixed and mobile telephony, as well as Internet access for enterprises. The Wholesale and Other area serves wholesale customers and is responsible for the delivery of communication services, such as infrastructure leasing, information technology (IT) outsourcing, as well as sell of installation material and electronics. The Company operates in the Basque Country, Spain.
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