Base for sale: Altice, Iliad, Tele2 most likely bidders

Thursday 5 March 2015 | 12:44 CET | Market Commentary

KPN has put its Belgian unit Base up for sale again, according to Bloomberg. The Dutch operator tried in 2012 to sell Base, but did not attract the desired price, reportedly around EUR 1.8 billion. Since then KPN has sold E-Plus in Germany and reduced its focus to the Netherlands and Belgium. 

A sale of the relatively small Belgian unit would not be a surprise. We expect KPN is hoping to raise around EUR 1 billion and see Altice, Tele2 and Iliad as the most likely bidders for Base. KPN's share price showed little reaction to the report of a Base sale, but the share price is up around 25 percent already since January when rumours surfaced of Deutsche Telekom's possible interest in KPN. Mobistar's share price fell around 5 percent on the news of a Base sale. 

There are two reasons why KPN has returned to the idea of selling Base. While the mobile market in Belgium is not so difficult as the fixed, Base is a distant third in the market, putting it in last place. Competition is intense, in part due to the recent arrival of Telenet as a MVNO. KPN has been withdrawing steadily from Belgium, selling assets, ending its triple-play offer Snow and reportedly suspending investments in Wallonia due to the increasing number of taxes there. Over the past two years, Base's EBITDA has nearly halved. 

Another reason for selling the unit is that KPN could use the money. Its debt is still high at 2.8 times annual EBITDA. Will the debt ratio improve much if Base is sold? Net debt will indeed decline, but so will EBITDA. In other words, could KPN achieve a higher valuation for Base than its own?


At the end of 2014, KPN had net debt of EUR 7.33 billion, and adjusted EBITDA for the year was EUR 2.57 billion. This results in a debt ratio of 2.85 times EBITDA. Base contributed in 2014 adjusted EBITDA of EUR 156 million. From this we can calculate what KPN needs to raise from selling Base in order to strengthen its balance sheet. 

With a price tag of EUR 1.29 billlion, the net debt ratio would drop to 2.5 times EBITDA, the high end of KPN's targeted range of 2.0-2.5. This values Base at 8.3 times annual EBITDA. With proceeds of only EUR 430 million, the debt ratio would not change. This amount values Base at just 2.8 times EBITDA. (Note that any valuation will also take account of future expectations for EBITDA). 

In comparison, the larger Mobistar, which is number two on the market, has a market capitalisation of EUR 1.27 billion, equal to around 4.6 times annual EBITDA. This also includes its operations in Luxembourg. Base has around three-quarters the Belgian revenues of Mobistar. The comparison in terms of customers is more difficult. Base only breaks down its customers by prepaid and postpaid and does not disclose how many are wholesale (MVNOs); we estimate almost half are wholesale. Mobistar does give a wholesale breakdown and also has a larger number of M2M Sims. Looking at the total number, Base's customer base is equal to around 60 percent of Mobistar's Sims. Base does have a higher EBITDA margin than Mobistar (21% vs 18%), and growth is also lower at Mobistar. 

Based on the above, we expect that a price tag of EUR 1 billion for Base is achievable for KPN. This still values Base at a high 7 times EBITDA for 2014. Such a price would reduce KPN's debt ratio to 2.62. This is a nice improvement, but not enough. In April, the lock-up on KPN's 20.5 percent stake in Telefonica Deutschland will expire. The stake is valued at almost EUR 3 billion, and we expect it will also go up for sale.


Finally, who are the candidates for buying Base?

  • Orange has ruled itself out, as it already owns Mobistar.
  • Telenet is a possibility, but this would not be in line with its parent company Liberty Global's strategy of becoming a Full MVNO. Liberty may be heading towards a merger with Vodafone in the long term as well. A bid for Base would be its first mobile acquisition and a sign of a new strategy.
  • Deutsche Telekom is not likely either. It would be buying a small operator with no exposure to the fixed market.
  • For Vodafone, Belgium is a small market with some possibilities for synergies. However, Vodafone already has a partner agreement with market leader Proximus (Belgacom).
  • Altice is building a portfolio of cable companies, mobile operators and PTTs. It has a small cable operation in Belgium, and has said it's interested in expanding there, so a Base takeover could offer synergies.
  • Iliad, the parent company of French operator Free, is perhaps the most important candidate. Synergies are possible with Free Mobile, and the company is capable of mounting a challenge on the Belgian market with Base.
  • Tele2 has said it will consider acquisitions in 2015. Tele2 could also develop a challenger strategy with Base.
  • Private equity bidders are also possible. Free founder Xavier Niel recently used a private investment vehicle to acquire Orange Switzerland. An IPO could then be in line for Base. 

For KPN, candidates able to realise synergies and create value at Base are more interesting, as this helps drive up the price.  In this sense, Altice, Iliad and Tele2 are the most likely candidates. 

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