- Latin America group is looking to bulk up its operations in Colombia and Costa Rica
- Move would see Telefónica exit the Colombian market
- Meanwhile, Xavier Niel’s Atlas Luxco increases its offer for Millicom to $25.75 per share
It’s been a busy few days for Millicom Cellular International, which operates under the Tigo brand in a number of markets in Latin America. The group first announced plans to expand its operations in Colombia in part through the acquisition of Telefónica’s unit in the market, and then said it intended to merge its operations in Costa Rica with those of Liberty Latin America.
The aim of the market expansions, CEO Marcelo Benitez said during Friday’s earnings call for the second quarter of 2024 (Q2 FY24), is to keep up with the growing demands of customers.
“This ongoing need makes it challenging for small players to remain competitive over time, and has contributed to a global trend of consolidation into two or three leading players,” he said.
He noted that Millicom’s plan to invest in Colombia and Costa Rica is fully in line with this trend. He said they are the “only two countries where we have not historically been able to grow our equity free cash flow, and these projects should help us change this.”
As commented by CFO Bart Vanhaeren, much work still lies ahead before the transactions can be completed, which would most likely be in 2025. Only non-binding agreements have so far been signed, and the deals will also be subject to regulatory approvals.
Bulking up
In detail, Millicom plans to invest a total of around $1 billion in various transactions in Colombia, roughly doubling its size in the market.
It is now in talks over the potential acquisition of Telefónica Hispanoamérica’s 67.5% stake in Telefónica Colombia (Coltel) for about $400 million, and also intends to buy the government’s stake in Coltel at the same price per share.
Notably, the transaction would see Telefónica exit the market. The Spain-based group has already divested operations in many markets in Latin America, where returns were lower than capital cost, to focus on Spain, Brazil, Germany and the U.K.
In addition, Millicom is aiming to buy the 50% it doesn’t already own in Tigo Une from Empresas Públicas de Medellin’s (EPM), ultimately merging Tigo Une with Coltel.
According to Millicom, the resulting combined entity would “rejuvenate Colombia’s telecom sector by forming a robust telecom entity with the necessary scale and financial capacity” to support network and spectrum investments.
In Costa Rica, Millicom and Liberty Latin America have entered into an agreement to merge their respective operations in the market. Under the terms of the agreement, Liberty Latin America and its minority partner in Costa Rica would hold an approximate 86% interest and Millicom 14% in the joint operation, with the final ownership percentage confirmed at closing.
“This transaction would create a clear number one fixed-mobile operator in Costa Rica, and give us the combined scale needed to accelerate fiber deployment in the country,” Vanhaeren said.
Notably, Liberty Latin America acquired its operations in Costa Rica from Telefónica in 2021.
Pursuit of Millicom continues
Meanwhile, Millicom itself remains an acquisition target. In July, Xavier Niel confirmed his intention to buy out other shareholders in a deal worth about $4.1 billion, marking the French entrepreneur’s latest effort to expand his telecom empire.
Atlas Luxco, a subsidiary of Atlas Investissement that in turn is fully owned by Niel’sinvestment vehicle NJJ Holding, initially offered $24 per share, but Millicom’s board recommended that shareholders reject the offer as they believe it undervalues the company.
Undeterred, Atlas Luxco announced on Friday that it has increased its offer to $25.75 per share, although still with an expiry date of August 16.
During Millicom’s earnings call, the group’s management said it was unable to comment on the ongoing tender offer process.
Transformation drive
In addition to Colombia and Costa Rica, Millicom has a presence in Bolivia, El Salvador, Guatemala, Honduras, Nicaragua, Panama and Paraguay.
In Q2 FY24, revenue increased 4.7% to $1.46 billion while EBITDA rose 23.1% to $634 million. Net income amounted to $78 million and equity free cash flow reached $268 million. The aim is to achieve free cash flow above $600 million in FY24.
Benitez, who only took over as CEO in June, noted that Millicom has already undergone a profound transformation that included exiting all six of its African operations over several years, introducing an efficiency program and stepping up investments in 4G and fiber in its remaining markets.
“This has been an outstanding quarter for us at Millicom,” he said. “We have strengthened Tigo’s market leadership and successfully implemented a more efficient platform to ensure the company’s profitable growth for the years to come.”