Millicom announced today that it has signed an agreement to acquire the remaining 45% equity interest in its joint venture businesses in Guatemala from its local partner for US$2.2bn in cash. The transaction was signed today and is expected to close later today.
As a result, Millicom will own a 100% equity interest in Tigo Guatemala. The transaction is expected to be significantly and immediately accretive to Millicom’s cash flow and net income and to increase Millicom’s equity-free cash flow by approximately US$200mn before incremental financing costs.
Bridge financing to fund the transaction is being provided by a group of leading international banks. Millicom intends to refinance the bridge with the planned issuance of approximately US$1.5bn of new long-term debt, and approximately $750 million of new equity via a rights offering expected for Q1 2022. Giving effect to the transaction and the planned equity offering, Millicom’s leverage1 is expected to be approximately 3.1x in Q1 2022 and to continue to decline thereafter towards the company’s leverage target of 2.0x.
With this transaction, Millicom cements its position as the leading telecommunication service provider in Central America.
Millicom CEO Mauricio Ramos said: “We are delighted to have signed this agreement to consolidate a 100% ownership position in Tigo Guatemala, one of our most successful businesses. The transaction is right in line with our stated inorganic capital allocation strategy, which includes the acquisition of the remaining minority interests owned by third parties in our operations, when those transactions can be executed in an accretive manner.”
“We thank our partners for their important role developing Tigo Guatemala and for the support for this transaction. For Millicom, this new investment reflects our continued confidence in the thriving economy of Guatemala and our renewed commitment to the digital transformation of its society. Hand in hand with the vision and strong commitment of our team of more than 3,100 employees in the country, we will continue to build the digital highways that connect people, improve lives, and develop communities all throughout Guatemala,” Ramos added.
He finished by saying that: “With this transaction, we will transform the financial profile of Millicom, significantly increase our cash flow and net income and greatly simplify our structure.”
Who is Tigo Guatemala, Millicom’s joint venture business?
As of September 30, 2021, Tigo Guatemala was the leading mobile player with 11.6mn subscribers, the leading broadband internet provider with 392,000 subscribers, and the second-largest pay-TV provider with 567,000 customers. Tigo Guatemala is the most profitable business within the Millicom Group, with an EBITDA margin above 51%. In addition, Tigo Guatemala also owns extensive infrastructure assets, including approximately 4,400 towers, two-tier 3 data centres, and more than 21,000 km of fibre.
In 2020, Tigo Guatemala’s revenue grew 4.8% to US$1.5bn, EBITDA rose 4.0% to US$778mn, operating cash flow (“OCF”) increased 3.9% to US$597mn, and equity-free cash flow after leases (“EFCF”) was US$360mn. Based on its robust financial and operating performance in the first nine months of 2021, Tigo Guatemala’s financial targets3 for full year 2021 are:
- Revenue of about US$1.6bn, up 6% year-over-year;
- EBITDA of US$850mn, implying an EBITDA margin of 53% and growth of 9%;
- OCF (EBITDA less Capex) of US$650mn, implying an OCF margin of 41% and growth of 9%.
- EFCF after leases of approximately US$450mn, implying growth of 25%; and
- Net income of approximately US$350mn, up 32%.
Based on Tigo Guatemala’s full year 2021 targets, the purchase price implies the following valuation multiples: EFCF yield of around 9.0%, EV/OCF of 8.2x, and EV/EBITDA of 6.2x. As a result of the transaction, Millicom will fully consolidate Tigo Guatemala’s results and balance sheet.
Millicom management will host a video conference call to discuss the transaction on November 12, 2021 at 14:00 (Luxembourg/Stockholm) / 13:00 (London) / 08:00 (Miami).