Shares in TDC soared more than 13 per cent on Wednesday amid fresh speculation that the Danish telecommunications company was being targeted for takeover by two consortia of private equity funds.
With no immediate comment forthcoming from TDC executives, analysts in Copenhagen said there may be more room for the company’s shares to rise in anticipation of a bid, which could offer a significant premium on the company’s value of DKr55bn ($9bn) at closing on Tuesday.
“We know that TDC is currently trying to sell its directories business, so contact between TDC and venture capitalists is likely to be going on,” said John Pearce, telecoms credit analyst at Dresdner Kleinwort Wasserstein, in a note to clients.
“TDC is probably more vulnerable to an LBO [leveraged buy out] than any other European telco,” he said, given its “achievable” size, many disposable assets and the fact that 100 per cent of its shares are in free-float.
However, Mr Pearce also added: “We think that an LBO for any European telco is unlikely - it seems to us that there are many other areas where LBO transactions are easier to bring about.”
TDC has been the subject of repeated takeover speculation since last year when SBC Communications of the US relinquished its control of the company.
TDC subsequently dropped a provision in its statutes that barred any shareholder from holding a stake in excess of 9.5 per cent without the board’s permission.
In the debt market, the cost of buying protection against a TDC default soared more than 70 per cent amid concerns that a bid would stretch the company’s balance sheet with new debt. Five-year credit default swaps rose to 145 basis points form 85bp on Tuesday, meaning it cost €145,000 a year to buy default protection for €10m of TDC debt.
In early April this year, TDC CDS prices surged five-fold to about 200bp on the London market – an indication that many traders were betting on the likelihood of a private equity bid. “It is an old story coming back to the market and many investors were positioned for this,” said Marcus Schüler at Deutsche Bank’s integrated credit trading desk.
TDC, based in Copenhagen but with very substantial operations elsewhere in Europe, has become a very loosely-held company since SBC’s departure.
Its three biggest investors all hold stakes of less than 10 per cent: Capital (8.8 per cent); Franklin (5.2 per cent) and ATP (5.8 per cent).
Some 85,000 small shareholders, including private investors and employees, own about 15 per cent between them.
At 1215 GMT TDC’s stock was 10.6 per cent higher at DKr304, after peaking at DKr312.50 in morning trade.