Open Letter to the Board of Directors of Orange Belgium

LONDON, Dec. 7, 2020 /PRNewswire/ --

Board of Directors
Orange Belgium
Avenue du Bourget 3
1140 Brussels
Belgium

Dear Members of the Board of Directors of Orange Belgium:

We are writing to you as the investment manager for the Polygon European Equity Opportunity Master Fund and certain client accounts which collectively have an economic interest in 5.29% of Orange Belgium's total share capital.

Polygon has been an investor in Orange Belgium since 2015 and has been supportive of the previous and current management's strategies to open up the Belgian market to more cable and internet competition.

A lot of hard work has been done to get to where we are now and the future looks very bright. 

During the most recent Orange Belgium earnings release and call, the guidance for 2020 EBITDA was raised to the high end of expectations, which currently sits at approximately 325 million euros.  Given the health of the Orange Belgium business, 2021 EBITDA expectations have moved to approximately 340 million euros.  The five-year forward growth for Orange Belgium is now accelerating as the company's cable and internet-only market share grows and adds to its core mobile business.

The company is also very cash generative and there remains almost no debt on the company's balance sheet, with estimates for the end of 2020 of around 90 million euros of net debt.

In our view, most low- to no-growth European telecom companies currently trade at around 6 times forward EV/EBITDA in the market with no premium for control.

We see faster-growing European telecom companies trade closer to 7.5 times forward EV/EBITDA with no premium for control.

We believe the fair value for Orange Belgium, even ignoring a premium for control, lies towards the upper end of these two multiples as it is a faster-growing challenger in the Belgian market.

In addition, Orange Belgium has a very valuable and perhaps less well-understood asset on its balance sheet of a type that many of its peers have been monetizing over the past few years.  This asset is its portfolio of 3,100 towers spread across Belgium.

Given what we see as the average transaction value in Europe for tower portfolios being approximately 300,000 euros per tower, even a partial monetization of two thirds of that portfolio could raise more than 600 million euros of cash.

Typical lease payments on a portfolio of that size and value should in our view be 5% or less of the purchase price, or no more than 30 million of annual EBITDA reduction.

Should that happen next year, as some market commentators have speculated (given that Orange SA — the parent company — has been monetizing its own tower assets), we would expect that the valuation uplift to Orange Belgium's share price would be significant.

Reducing 2021 EBITDA consensus to 310 million to account for 30 million of lease payments, adding 510 million of net cash to the balance sheet (assuming the current small net debt balance would be repaid), and valuing the company on a range of 6 to 7.5 times EV/EBITDA (which is in line with the trading multiples of Orange Belgium's peers, as noted above) would result in a price per share (assuming 60 million shares outstanding) of 39.5 to 47.25 euros per share.

Therefore, we consider the current intention to offer 22 euros per share to be, frankly, derisory and an attempt to take advantage of the weakness in Orange Belgium's share price brought about by COVID-19 and the general market dislocation this year.  It is our view that the foregoing has not been included in the determination of the offer — which has resulted in an unfair price for the Orange Belgium minority shareholders.

Should the Independent Board wish to speak to us for further details we would welcome the opportunity.

Sincerely,

Polygon

Media Contact: [email protected]

SOURCE Polygon Global Partners LLP

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