(Reuters) – French cable operator Numericable plans to sell its shares for between 20.30 euros and 24.80 euros per share in a public offer next week, valuing the private equity-owned company at up to 5.57 billion euros ($7.68 billion) including debt.
The offer is seen by executives and investors as a first step towards a shake-up of France’s telecoms sector, which has been stuck in a mobile price war for nearly two years. It also comes at a time of increasing investor interest in European cable companies as all-inclusive bundles of television, Internet, mobile and fixed-line calls gain in popularity.
The sale also rewards Cinven and Carlyle for backing the group in 2005 and 2008 respectively and will be the largest IPO in France since 2009.
Numericable, which offers packages of pay-TV, Internet and fixed-line calls, has made a pitch to investors centred on its growth prospects of a 2 to 5 percent rise in sales a year to 2016 and pointed to its attractions as a takeover target for Vivendi’s French mobile operator SFR and its rival Bouygues.
The company said the initial public offering (IPO) would include 402 million euros worth of existing shares to be sold by current owners Carlyle and Cinven. There is an overallotment option for additional existing shares representing up to 15 percent of the offering.
The 250 million euros of new capital due to be raised in the offer will go towards reducing its debt of 2.75 billion euros and funding the firm’s network investment programme.
A minimum 25 percent of the company is being sold, including employee options worth 2 million euros, the company’s chief executive said. Marketing is being aimed at institutional investors inside and outside France, while up to 10 percent of the listing will be set aside for investors in France.
“We are in a growth phase and in an extremely favourable position as high-speed broadband takes off in France,” Chief Executive Eric Denoyer told a news conference. “Our network is ahead of others in terms of speeds.”
Pricing is expected to take place on Nov. 7 and trading in Paris is expected to start on Nov. 8, Numericable said.
Based on Numericable’s earnings before interest, tax, depreciation and amortisation last year of 590.8 million, the post-IPO valuation ratio of enterprise value to EBITDA would be between 8.6 to 9.4 times. Cable sector peers are trading at an average of 9.5 times 2013 EBITDA, according to Espirito Santo.
That compares with a ratio of 10.4 for the STOXX 600 Europe telecoms index, a ratio of 5.27 for Deutsche Telekom and 10.14 for Vodafone.
The final valuation of France’s sole cable operator will depend largely on how much credit investors give the group regarding a takeover, which analysts say could generate 2-3 billion euros in cost savings depending on the buyer.
Numericable’s owners held merger talks with Vivendi’s SFR last year but could not agree on price. SFR is now also preparing for an IPO next year.
Bouygues, France’s third-biggest mobile operator, is the other possible buyer for Numericable since Orange, formerly France Telecom, would be prevented by competition rules from bidding. Bouygues already buys wholesale broadband capacity from Numericable.
Cable businesses are being snapped up across Europe, with two big deals already completed this year – Vodafone’s $10 billion acquisition of Kabel Deutschland and Liberty Global’s near $16 billion buy of British group Virgin Media.
Liberty, which is Europe’s largest cable group and backed by U.S. billionaire John Malone, also owns 58 percent of Belgian Telenet and 28.5 percent of Dutch Ziggo.
But Numericable is regarded as a lower quality asset than some peers because, hamstrung by high debts, it invested less in upgrading its network in recent years, said prospective institutional investors who declined to be named.
It has now upgraded roughly 60 percent of its network, which covers a third of French households, to be capable of delivering high-speed broadband of up to 30 megabits per second. In contrast, Ziggo and Telenet have completed upgrades, while Kabel Deutschland is roughly 95 percent done.
Bertrand Lamielle, director of investment fund B*Capital, said the valuation made sense given peers. “Investor enthusiasm is going to be determined by how much they believe in the M&A angle and the possible synergies and timing for such a scenario.”
After the listing, Cinven will own about 15 percent and Carlyle 25 percent of Numericable, depending on the size of the IPO.
Their fellow owner is Altice, an investment fund controlled by entrepreneur and Numericable founder Patrick Drahi. Altice will become the largest shareholder in Numericable after it buys shares worth an additional 6 percent from Cinven and Carlyle.
Drahi plans to increase its stake to 37.5 percent shortly after the IPO to get control of Numericable, a source familiar with the matter said.
Deutsche Bank and JP Morgan are running the sale, and Credit Agricole, HSBC, and Morgan Stanley are joint bookrunners.