The $10bn telecom takeover brewing in Latin America

In today’s newsletter:

Will telco billionaire Xavier Niel challenge Apollo?

Is a takeover battle brewing for Latin American mobile operator Millicom International?

French telecoms billionaire Xavier Niel announced on Tuesday that his holding company had raised its stake in Millicom to 19.6 per cent from 7 per cent disclosed in November.

The large minority stake could complicate the near-$10bn bid that private equity group Apollo Global and ex-SoftBank executive Marcelo Claure have been preparing, which the FT first told you about in January.

In the weeks after the FT’s report, trading volumes in Millicom soared, causing merger arbitrage analysts to question whether an incumbent shareholder was building a stake.

At least some of the buying came from Niel as he bolstered his position and muddied what’s already a complicated story for Millicom — one of the largest telecom providers in Latin America (despite being based in Luxembourg).

The company, which serves 50mn customers predominantly under its Tigo brand, has been trying to cut its heavy debt load through a corporate break-up.

Millicom is planning to spin off its cellular tower business by the end of the year after a gruelling multiyear separation plan. It’s also soliciting outside investors for its Tigo Money digital payments platform. But fast-rising interest costs and soaring regional inflation have made the operating environment increasingly precarious, battering shares. The telecom group has seen its stock fall by two-thirds since 2019.

Apollo and Claure are looking to buy all of Millicom ahead of those divestitures, sources briefed on the group’s thinking told DD. The company’s stock has already soared beyond the “high teen” price the group had wanted to pay, signalling that it may need to pay up.

Niel has filed as a passive shareholder for now and has remained tight-lipped on his ambitions for Millicom.

But the billionaire has never been one to miss out on a good opportunity. He has been buying up telecom assets for years via his holding company and Iliad, the French telecoms group he founded in 1990 that has expanded into Italy and Poland. His investment vehicle Atlas Investissement also bought a 2.5 per cent stake in Vodafone in September.

Now that Niel’s Atlas is Millicom’s biggest shareholder, DD is watching to see how it will affect the deal talks under way between Millicom, Apollo and Claure. He was already a significant shareholder when their deal began forming, underscoring that the group already knew its efforts would have to eventually win approval by large existing shareholders.

Niel’s typical playbook is to buy up telecoms groups before applying the signature low-cost model that made his fortune in France. So it wouldn’t be like him to quickly flip an asset or stake to another buyer.

Telecoms is a small world and DD wouldn’t be surprised if the bankers and other players around the table on this one happened to know each other well enough to pick up the phone.

Asia’s investment powerhouse cools on China

GIC knows more than most about how to make money in China.

The Singapore sovereign wealth fund, which is chaired by Prime Minister Lee Hsien Loong, was an early, credible backer of China’s economic growth story. It has made impressive returns on its investments in the country for almost three decades.

But lately things haven’t been easy for the group’s investments in the world’s second-largest economy.

GIC, which manages an estimated $700bn, is a significant investor in Chinese real estate — which has been plunged into crisis. It’s also an investor in Ant Group, and was hit when Chinese regulators halted the company’s planned initial public offering in 2020.

Now, it has put the brakes on investments in the country, DD’s Kaye Wiggins and the FT’s Mercedes Ruehl and Leo Lewis report in this FT scoop.

GIC has scaled back commitments to China-focused private equity and venture capital funds over the past year, five people with knowledge of the matter said. It has also significantly slowed the pace of its direct investments in private Chinese companies.

DD readers will be well aware that many other investors, particularly in North America, have already taken a cautious approach to investing in China. That’s partly because of geopolitical tensions, and partly because regulatory crackdowns and a halt in US listings of Chinese companies make financial returns seem more uncertain than before.

But GIC, one of the biggest investors in private equity and venture capital, has long been bullish on China and its name carries a lot of weight.

In internal discussions over the past year, some of GIC’s most senior figures have struck a more cautious tone on investing in the country, people with knowledge of the matter told the FT. 

The talk among financiers seeking access to GIC’s cash for China investments is of pauses, freezes and slowdowns. None said the fund had stopped altogether, and some said it had signalled that it was open to future conversations.

“They have dramatically decreased investments,” said one executive who had sought to tap GIC for funds to invest partly in China. The “pivot” came at a time when it was difficult for funds to find other places to invest on the same scale, they added.

China has reopened its borders and lifted zero-Covid restrictions. Its vice-premier Liu He told corporate executives in Davos this year that the country was back. GIC’s approach to private, long-term investments in the country will be one crucial test of that.

Toshiba enters shark territory

Toshiba is haemorrhaging profits. The resignation of its chief operating officer Goro Yanase over improper entertainment expenses has only added to the carnage.

This is the exact type of accident-proneness that has made Toshiba such a disaster in recent years, leaving it vulnerable to private equity ambitions.

The Japanese industrial conglomerate on Tuesday revealed its quarterly operating profit fell almost 90 per cent, drifting far below analysts’ expectations as the group considers a $15bn buyout proposal from a consortium led by Japan Industrial Partners.

Despite Toshiba awarding preferred bidder status to JIP in October over suitors including Bain Capital and CVC, negotiations have dragged on for months as the fund struggles to secure financing from skittish Japanese banks.

If JIP’s latest proposal is approved, it would end an eight-year saga that brought the company to the brink of collapse and cement the country’s largest-ever take-private deal.

The $15bn figure came in at a discount to Toshiba’s market value. That has since turned into a premium, Lex points out, factoring in the latest financial results.

The sudden exit by Yanase, who had allegedly submitted entertainment expenses without reporting the names of attendees in violation of company rules, is another hit to its perceived value after years of accounting scandals and a bitter battle with activist investors.

If it doesn’t clinch a deal with JIP soon, the question will shift back to what on Earth this storied conglomerate can do to keep its shareholders happy.

It’s not clear that the big private equity funds have the dealmaking appetite for this company they once did, and this isn’t a shareholder register that will tolerate a bad deal.

Elliott Management, fresh off a successful campaign at Japan’s Dai Nippon Printing, is no doubt watching the situation closely. Elliott’s Nabeel Bhanji joined Toshiba’s board last year and has a vested interest in getting the best price.

Job moves

• Christine Wilson, the only Republican commissioner at the US Federal Trade Commission, plans to resign, writing in an op-ed for The Wall Street Journal that she could no longer serve because of FTC chair Lina Khan’s “disregard for the rule of law and due process”.

• Joe Biden has announced a shake-up of his economic team, tapping Lael Brainard, the vice-chair of the Federal Reserve, to be director of the National Economic Council, and Jared Bernstein to be chair of the council of economic advisers.

• Morgan Stanley has promoted Ben Grindley and Anthony Zammit to co-heads of UK and Ireland investment banking, per Financial News.

• HSBC has appointed Kalpana Morparia, JPMorgan Chase’s former chair of South and South-east Asia, as an independent non-executive director.

• Clifford Chance’s former global managing partner Matthew Layton is joining public relations and advisory firm FTI Consulting as a senior adviser for Europe, the Middle East and Africa.

• Simpson Thacher & Bartlett has hired Ed Ford and Sacha Gofton-Salmond as partners on its secondaries team, based in London. Both join from Travers Smith.

Smart reads

‘The Big Con’ Consultants such as McKinsey, Bain and Boston Consulting Group know less than they claim to and can end up doing more harm than good in the long term, economist Mariana Mazzucato argues in this FT interview.

It’s a small world after all Prateek Gupta, the man behind Trafigura’s nickel fiasco, has some interesting ties to another Gupta, our Alphaville colleagues point out: Sanjeev Gupta, whose GFG Alliance helped fuel the implosion of Greensill Capital when it defaulted on more than $5bn of debt.

Posh-ifying the pitch Venezia Football Club keeps losing matches. But its bottom line is looking better than ever, thanks to a high-fashion rebrand, Bloomberg reports.

News round-up

Gautam Adani dismisses share-price rout as ‘temporary’ volatility (FT)

UK betting group Flutter looks at US listing (FT + Lex)

Hedge fund Element to slim down after $1bn hit in rally (FT)

Microsoft to defend Activision deal at EU hearing on Feb. 21 (Reuters)

BBC offices in India searched by tax authorities after Narendra Modi documentary (FT)

TikTok’s talks with US have an unofficial player: China (Wall Street Journal)

Billionaire ‘Hitman’ who made BTS huge goes on a buying spree (Bloomberg)