Millicom International Cellular S.A. said it has entered into agreements with Telefónica S.A. and certain of its affiliates, to acquire the entire share capital of Telefónica Móviles Panamá, S.A., Telefónica de Costa Rica TC, S.A. and Telefonía Celular de Nicaragua, S.A.
Millicom said it is paying for a combined enterprise value of $1,650 million in cash. The Transaction is subject to customary closing conditions, including regulatory approval in each market, and closings are expected during H2 2019. Telefonica CAM is the mobile market leader in Panama and Nicaragua and the second largest mobile provider in Costa Rica, with about 8.7 million total customers.
Millicom currently controls and operates cable networks in all three countries, and as such the Transaction represents a perfect complement to Millicom’s existing operations. It reinforces Millicom’s market leadership in Central America and builds on its recent acquisition of Cable Onda, the leading cable operator in Panama. In addition, the Transaction significantly expands Millicom’s operations in each of the three countries and will thus further diversify and balance the company’s geographic footprint and sources of cash flow. For the 2015-2018 period, Telefonica CAM revenue and Adjusted EBITDA have grown at CAGRs of approximately 4% and 11%, respectively, in US dollar terms.
In 2018, Telefonica CAM generated revenue of $709 million and Adjusted EBITDA of approximately $243 million. Capex for the same period totalled $79 million, such that OCF (Adjusted EBITDA less Capex) was approximately $164 million. The aggregate purchase price implies a multiple of 6.8x 2018 Combined Adjusted EBITDA and 10.1x Combined OCF, whilst on a post-synergy basis it implies 5.8x 2018 Combined Adjusted EBITDA and 8.3x Combined OCF based on cost and capex synergies. Millicom expects to generate annual run-rate opex and capex synergies of $35-50 million, equivalent to an NPV of approximately $290 million. The projected opex and capex synergies are expected to be largely realized by 2021 and fully realized by 2023 and would stem primarily from: (1) network and IT integration benefits, (2) rationalization of sales, distribution and branding, (3) optimization of support functions, (4) procurement savings from increased scale, and (5) in-market fiber backhaul capabilities. In order to achieve these synergies, Millicom expects to incur pre-tax integration costs over the first two years of approximately $100 million. In addition, Millicom has identified potential revenue synergies equivalent to an additional NPV of approximately $250 million stemming mostly from cross-selling mobile products to Millicom’s existing cable customers and cross-selling cable services to Telefonica’s mobile customers, as well as increased revenue from lower customer churn resulting from a growing proportion of sales made on a bundled basis. Mauricio Ramos, CEO of Millicom said
“This significant investment of market leading mobile operations will make our combined businesses even stronger. We are acquiring the #1 mobile operator in Panama and in Nicaragua and the #2 mobile operator in Costa Rica. As a result, we now have both fixed and mobile in every market we operate in Latin America.
He added that “The transaction gives us full in-market scale and the benefits of significant synergies. Furthermore, together with our earlier acquisition of Cable Onda in Panama we are reshaping the industry landscape in Central America, paving the way for a healthy investment environment to help fulfil our purpose of building the digital highways that will connect our people and develop our communities in these countries.”