Belgacom Case

Belgacom

1- ) Belgacom share had risen up to 0.92% on the very day it acquired the remaining 25% of the shares from Vodafone. It also enjoyed an increase of 9.2% in the following month, the main reason for this instant growth in the share was the advantage that Belgacom now owned; it was acquiring all the profits and revenues being generated from the Proximus. Investors have their main interest in the company’s future earnings and the ups and down in it, because of which there is every possibility that this effect on the shares might be temporary/ short term, because the prices just represent the present value of the expected returns. But the cash flows of Belgacom will increase in a significant manner. Previously, Proximus was a subsidiary of Belgacom owned by Vodafone, but now it holds all the rights to Proximus and its cash flows.

The reason for the initial drop in ratings was caused due to the increased debt of Belgacom. S&D brought the ratings down by a notch. At the time of the acquisition Belgacom’s debt was recorded to be € 1.5 billion. S&D had expected the debt ratio EBIDTA to increase up to 1.9x from 0.8x. Although in the research paper S&D didn’t expect this to go over 2.0x but S&D had predicted from the strong outlook of Belgacom that the company will still retain as the market leader. The company will still have good operating margins and very stable FOCF. Also the acquisition of Proximus, which had 47.3% of the total subscribers of Belgium, would become a resource of benefit for the future cash flows of Belgacom.

2- ) Belgacom decided to go for bridge loan for the acquisition of Proximus because:

* The loan was fully underwritten by 5 banks.

* The company used this short term financing so that they could get some time to secure long term permanent financing.

* The reason was that Belgacom wanted to purchase Proximus for EUR 1.8 billion on cash. If they had gone for issuing bonds to finance, it would have taken up...