acquisition of Q-Telecom by Apax Partners and Texas Pacific Group (TPG) sets an important precedent for valuing minority shares in TIM Hellas, according to TCS Capital

October 20, 2005

5 Min Read

NEW YORK -- Today's announced acquisition of Q-Telecom by private equity firms Apax Partners and Texas Pacific Group (TPG) sets an important precedent for valuing minority shares in TIM Hellas, according to TCS Capital, the largest minority shareholder of TIM Hellas.

Apax and TPG have agreed to buy Q-Telecom, Greece's number four wireless- phone company, for euro 350 million. This purchase price equates to a 14.3x multiple of first half annualized Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA). Applying this multiple to TIM Hellas' normalized 2004 EBITDA implies a valuation of euro 46.73 for each TIM Hellas share. This is nearly three times higher than the current offer to minority shareholders of euro 16.42 per TIM Hellas share, or only 5.4x normalized 2004 estimated EBITDA.

Furthermore, by combining with Q-Telecom, TIM Hellas should substantially improve its strategic position in the Greek wireless market. TIM Hellas will be positioned to become a much stronger number three operator with 28% market share. According to J.P. Morgan, Q-Telecom has been an aggressive competitor with its market share increasing from 3.5% in 2003 to 8% today. As long-term shareholders of TIM Hellas, TCS Capital has endured the pain of the company's weak performance over the last few years. With the acquisition of Q-Telecom and the recent hiring of experienced senior management with significant industry knowledge, TIM Hellas now has a major opportunity to create value for its minority shareholders.

In the offering memorandum for its recent bond financing, TIM Hellas noted that the addition of experienced senior management "has further strengthened the company and resulted in a notable improvement in the company's recent performance, as evidenced by the improvement in a number of our key performance indicators. Our senior management team believes that they will be able to accelerate our revenue growth in coming years." Given this promising outlook for TIM Hellas, it should not be surprising that Apax and TPG are seeking to forcefully buy out TCS Capital and other minority shareholders at such a depressed valuation.

Finally, after the initial filing of its Transaction Statement with the SEC, TIM Hellas continued to file additional disclosure relating to the various points of conflict of interest. The amendments have provided further detail on the history of the transaction between Apax, TPG and TIM International. In one of the amendments, it was revealed for the first time that following a meeting in July 2003, Apax submitted a non-binding preliminary bid of euro 1.7 billion for 100% of TIM Hellas. This bid was rejected by TIM International, which controlled TIM Hellas at that time. This preliminary bid would have valued TIM Hellas at euro 20.26 per share (compared to the euro 16.42 per share offer to buy out minority shareholders today). In late 2004, Apax and TPG again approached TIM International. In December 2004, they submitted a non-binding proposal that valued 100% of TIM Hellas at euro 1.5-euro 1.6 billion or euro 18.18-euro 19.37 per share. TIM International again rejected the proposal, but agreed to continue discussions. On February 1, 2005, TIM International, Apax and TPG entered exclusive talks on a transaction, which they consummated in April 2005 at a valuation of only euro 1.1 billion (euro 16.42 per TIM Hellas share).

At that time, TIM Hellas appeared to have improving prospects led by strong new senior management. In September 2004, TIM International hired a highly-regarded executive from Vodafone Panafon to be CEO of TIM Hellas. Other experienced senior officers from leading Greek wireless competitors also had been hired just before the period that Apax and TPG entered exclusive talks with TIM International on a merger transaction. The company's filings do not adequately explain why a savvy and value-maximizing operator like TIM International would agree to such a low price after rejecting much higher offers from Apax and TPG. In its offering memorandum for its recent bond financing, TIM Hellas disclosed that its new owners Apax and TPG agreed to several long-term licensing, non-compete and other commercial arrangements with TIM International that would benefit TIM International both financially and competitively.

The amended disclosure also revealed that representatives of a major wireless investor approached Apax and TPG in August 2005 to discuss a potential bid for 100% of TIM Hellas at a value of euro 19.50 per share. This investor is a highly credible and experienced wireless operator who controls wireless companies in Italy and the Middle East that are valued at more than $20 billion. According to the company's filing, Apax and TPG decided not to pursue a transaction with this investor.

These new disclosures described above underscore the abusive and inadequate treatment of minority shareholders of TIM Hellas. In its new filings, TIM Hellas has disclosed three fresh data points that clearly show that minority shareholders are not being treated fairly: (1) the acquisition of Q-Telecom by TIM Hellas at 14.3x EBITDA; (2) evidence that Apax and TPG made a non-binding offer to pay a substantially higher price for a weaker TIM Hellas; and (3) a potential offer of at least euro 19.50 per share from a well capitalized telecommunications investor.

These new developments substantially strengthen the position of minority shareholders. Despite their effort to implement a structure to force a minority buy-out, Apax and TPG cannot defy the clear intention of Greek law: minority shareholders cannot be squeezed out.

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