Millicom (Tigo) announces potential acquisitions in Colombia

Rhea-AI Summary

Millicom (NASDAQ: TIGO) has announced potential acquisitions in Colombia, entering a non-binding memorandum of understanding with Telefonica. The deal involves the possible combination of Telefonica Colombia (Coltel) and TigoUne. Millicom plans to acquire Telefonica's stake in Coltel for about $400 million in cash and intends to offer to purchase La Nación's and other minority interests in Coltel at the same price. Additionally, Millicom aims to acquire Empresas Públicas de Medellin's 50% interest in TigoUne.

The total investment is estimated at $1 billion in cash and assumed debt, to be funded through equity free cash flow over the next 18 months. The transaction is subject to definitive agreements, regulatory approvals, and other conditions. If successful, the combined entity would create a robust telecom operator in Colombia, supporting digital inclusion objectives and advancing Fiber and 5G technologies deployment.

Positive

• Potential creation of a stronger, more competitive telecom entity in Colombia
• Estimated $1 billion investment demonstrating commitment to market growth
• Opportunity to improve digital infrastructure and services across Colombia
• Potential for accelerated deployment of Fiber and 5G technologies

Negative

• Transaction is subject to multiple approvals and conditions, with no certainty of completion
• Significant cash outlay of approximately $1 billion required for the acquisitions
• Potential integration challenges and costs associated with combining multiple entities

Insights

Financial Analyst

Millicom's potential $1 billion investment in Colombia's telecom sector marks a significant strategic move. The proposed acquisition of Telefonica's stake in Coltel for $400 million and the potential purchase of EPM's 50% interest in TigoUne could reshape the competitive landscape.

Key financial implications:

• The deal would be funded through equity free cash flow over 18 months, aligning with Millicom's long-range plan. This approach suggests strong cash generation capabilities and financial discipline.
• The transaction's structure, combining cash and assumed debt, indicates a balanced approach to leverage and risk management.
• Creating a larger, more competitive entity could lead to improved economies of scale, potentially boosting profitability and market share.

However, investors should note the non-binding nature of the agreement and regulatory hurdles ahead. The $1 billion price tag is substantial, representing about 20% of Millicom's current market capitalization. While this could drive growth, it also carries execution risks and may impact short-term financial metrics.

The strategic rationale appears sound, potentially strengthening Millicom's position in a key Latin American market. However, the success will hinge on effective integration and realization of synergies to justify the investment.

Telecom Industry Expert

This potential consolidation in Colombia's telecom sector is a game-changer. By combining Telefonica Colombia (Coltel) and TigoUne, Millicom aims to create a formidable second player in the market, capable of challenging the incumbent's dominance.

Key industry implications:

• Increased competition: A stronger second operator could drive innovation and potentially lead to better services and pricing for consumers.
• Accelerated infrastructure development: The combined entity would have greater resources to invest in critical technologies like Fiber and 5G, potentially speeding up Colombia's digital transformation.
• Market dynamics shift: This move could trigger further consolidation or strategic responses from other players in the Colombian and broader Latin American telecom market.

The emphasis on supporting Colombia's digital inclusion objectives aligns with global trends of governments partnering with telecom operators to bridge the digital divide. This could potentially lead to favorable regulatory treatment, although antitrust scrutiny remains a key hurdle.

If successful, this deal could serve as a template for similar market consolidations in other developing economies, where scale is important for sustaining the high capital expenditures required in the telecom sector.

Market Research Analyst

Millicom's strategic move in Colombia reflects broader trends in the Latin American telecom market:

• Market Consolidation: As margins tighten and infrastructure costs rise, operators are seeking scale through M&A to remain competitive.
• Digital Transformation: There's a growing focus on expanding digital services and improving connectivity, especially in underserved areas.
• 5G Race: Operators are positioning themselves to lead in 5G deployment, which requires significant investment.

Colombia, with a population of over 50 million and a growing digital economy, represents a significant opportunity. However, the market faces challenges:

• Digital Divide: There's a substantial gap in connectivity between urban and rural areas.
• Infrastructure Investment: Significant capital is needed to upgrade networks and expand coverage.
• Regulatory Environment: Government policies play a important role in shaping the competitive landscape.

Millicom's move could potentially address these challenges by creating a stronger, more financially capable operator. If successful, this could accelerate Colombia's digital development and potentially serve as a model for other markets in the region.

Investors should monitor how this deal, if completed, impacts market dynamics and whether it leads to improved service quality and coverage for Colombian consumers. The success of this consolidation could influence similar strategies in other Latin American markets where Millicom operates.

Millicom (Tigo) announces potential acquisitions in Colombia

Luxembourg, July 31^st, 2024 – Millicom (NASDAQ: TIGO) and Telefonica today announced that they have entered into a non-binding memorandum of understanding for the potential combination of Telefonica Colombia (Coltel) and TigoUne. The discussions include the potential acquisition by Millicom of Telefonica’s stake in Coltel for approximately $400 million in cash.

Millicom also intends to offer to purchase La Nación’s and other minority interests in Coltel for cash at the same purchase price per share offered to Telefonica. Additionally, Millicom intends to offer to purchase Empresas Públicas de Medellin’s (EPM) 50% interest in TigoUne for cash at a comparable valuation multiple as the one implied by the Coltel acquisition.

Millicom plans to fund the proposed aggregate investment of approximately $1 billion in cash and assumed debt with equity free cash flow projected over the next 18 months, consistent with the company’s long-range plan. The transaction remains subject to negotiation and signature of definitive agreements with all parties involved, including Telefonica, La Nación and EPM, as well as receipt of regulatory and antitrust approvals and satisfaction of other closing conditions. There is no certainty the transaction will ultimately be consummated.

The proposed combined entity would rejuvenate Colombia's telecom sector by forming a robust telecom entity with the necessary scale and financial capacity to support the significant network and spectrum investments required to achieve Colombia's ambitious digital inclusion objectives. Colombia will gain a second large scale and financially viable operator at a crucial moment. This strengthened operator would bolster the digitalization of Colombia, ensure broader access to modern digital services across the country and advance the deployment of both Fiber and 5G technologies across the country, thereby enabling faster and more reliable services and an improved customer experience.

Regulatory Statement

Certain of this information was, prior to this release, inside information and is information that Millicom is obliged to make public pursuant to the EU Market Abuse Regulation. This information was submitted for publication, through the agency of the contact person set out above, at 7:30 CET on July 31, 2024.

-END-

For further information, please contact:

Press:	Investors:
Sofia Corral, Director Corporate Communications press@millicom.com	Michel Morin, VP Investor Relations investors@millicom.com

About Millicom
Millicom (NASDAQ U.S.: TIGO, Nasdaq Stockholm: TIGO_SDB) is a leading provider of fixed and mobile telecommunications services in Latin America. Through our TIGO® and Tigo Business® brands, we provide a wide range of digital services and products, including TIGO Money for mobile financial services, TIGO Sports for local entertainment, TIGO ONEtv for pay TV, high-speed data, voice, and business-to-business solutions such as cloud and security. As of March 31, 2024, Millicom, including its Honduras Joint Venture, employed approximately 15,500 people, and provided mobile and fiber-cable services through its digital highways to more than 45 million customers, with a fiber-cable footprint over 14 million homes passed. Founded in 1990, Millicom International Cellular S.A. is headquartered in Luxembourg.

FAQ

What is the value of Millicom's potential acquisition of Telefonica's stake in Coltel?

Millicom plans to acquire Telefonica's stake in Coltel for approximately $400 million in cash.

What is the total estimated investment for Millicom's potential acquisitions in Colombia?

The total estimated investment for Millicom's potential acquisitions in Colombia is approximately $1 billion in cash and assumed debt.

How does Millicom (TIGO) plan to fund the proposed acquisitions in Colombia?

Millicom plans to fund the proposed acquisitions with equity free cash flow projected over the next 18 months, consistent with the company's long-range plan.

What are the potential benefits of Millicom's proposed acquisitions in Colombia?

The proposed acquisitions could create a stronger telecom entity in Colombia, support digital inclusion objectives, and advance the deployment of Fiber and 5G technologies across the country.