Fidelity, the majority shareholder in LSE-listed telecoms biz Colt Group, has bid 190 pence per share to buy the remaining stock and take the ailing firm private.
The proposed transaction equates to a 21 per cent premium on yesterday’s closing share price and is 34 per cent up on the rolling average for the past twelve months, valuing total share capital at £1.73bn.
US hedge fund Fidelity said the offer “reflects” the “anticipated plans” of Colt C-level execs for the “business and its prospects”, and issued a stark warning:
The price will not be increased.
Colt may have dropped the Telecom tag from its brand but continues to be dogged by a slump in its legacy voice business: revenues slipped 5.1 per cent in 2014 to €1.495bn
The core telecom division reported an 18 per cent plus decline in sales to €452.1m due to the concerted withdrawal from low margin voice trading contracts. IT Services also crashed. Network and data centre services helped out but couldn’t offset the drop at group level.
A spike in operating expenses caused by rising selling, general and admin costs, coupled with relatively higher depreciation, amortisation, and impairment expenses, resulted in an operating loss of €25.1m, versus an operating profit of £39.4m in the prior year.
Back in 2011, the business recruited a bunch of enterprise services veterans including ex-Computacenter UK boss Simon Walsh but gave them the push after less than three years. It is obvious the new team has not ramped high-level tech services sales.
The offer from Fidelity does not constitute a takeover because the investor already owns 64 per cent Colt’s issued share capital. The equity backer said it will not sell on any Colt shares until 2017.
Fidelity was the founding investor in Colt before it was a publicly traded entity and would prefer to hold its investment in the private domain, where the majority of its interests lie.
The board at Colt mulled the offer with investment banker Barclays and reckons it “undervalues” the business.
But Colt execs admitted the deal may be considered acceptable by some shareholders “in the circumstances” and as such “make no recommendation to shareholders whether or not to accept the offer.”
A “new Business Plan” concocted by the management team at the telco and network services provider may “significantly improve” the financials, and a sale to a third party could attract a higher offer, it said.
If some Colt investors want to see a return now, and if requested by Fidelity, independent directors will call a meeting of shareholder required to implement the offer. ®