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Millicom discount to Liberty LatAm could prompt rival interest as Apollo/Claure mulls bid

Shares in Millicom International [NYSE:TIGO/STO:TIGO-SDB] have continued to climb ever since a consortium of financial sponsor Apollo and family-backed investment vehicle Claure Group said it was considering an offer for the telco.

Investors may simply be trying to get ahead of Millicom’s full-year numbers – scheduled for tomorrow – after an impressive performance around third quarter results.

But there’s also the possibility investors are weighing who else might enter the bidding fray now that Apollo/Claure has declared its interest – amid a wide trading discount to key comp Liberty Latin America [NASDAQ:LILA/LILAK].

Rival bid possibilities are numerous. China Mobile and Telefonica [BME:TEF] were rumoured to be interested in Millicom assets during 2019. Korea Telecom [KRX:030200] and America Movil [MEX:AMXA] have also shown appetite for deals in the region, previous analysis by The Morning Flash has showed.

And Millicom also held talks about a potential deal with Liberty Latin America in 2019. The latter’s relatively small market cap was a barrier to a transaction back then and could remain so today: Liberty LatAm’s equity is valued at USD 2bn versus Millicom’s USD 3.3bn. But potential synergies on a possible tie-up might be enough to persuade investors on the merits of a deal.

Share price gains on Millicom since Apollo/Claure’s interest was disclosed, on 25 January, are already up to 30% – a factor which in normal circumstances would already represent a generous takeover premium. But there could be more to come if rival bid interest materialises.

Millicom is valued at 4.5x 2022 EBITDA, according to sell-side estimates provided by Fidessa* and compiled by FactSet, while Liberty LatAm is valued at 5.7x.

For the two businesses to trade at parity, Millicom’s stock price would need to climb even further – to about SEK 360 per share – a punchy 81% higher than the SEK 199 at which the stock closed yesterday. And that would be 137% higher than Millicom’s undisturbed stock price of SEK 152 per share on 24 January.

While bids up at those levels might seem unrealistic for now, they could be become more likely if a strategic counterbid came into the picture. And these price possibilities serve to show there is plenty of room for a deal to be agreed. And that should be the case whether Apollo/Claure gets a clear run at Millicom or rival interest comes forward.

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