Millicom International Cellular S.A. (MICC) finally disposed its 74.1% stake in the Laos operation, to Vimpel Communications (VIP) of Russia
The deal will cost approximately $65 million to Vimpel. Additionally, Vimpel will pay $23 million to payoff the dues of the company related to shareholders loan, intra-group indebtedness and other such dues.
The agreement was announced way back on September 16, 2009 and both the companies agreed to complete the transaction by the end of 2009. But the transaction failed to materialize in the stipulated period due to some regulatory issues. Finally, the Government of Laos, which holds a 22% stake, has approved of the deal.
Earlier, Millicom had decided to return $800 million to its shareholders through a combination of a special dividend and a share buyback plan. So we believe that the cash received from this deal will be used for this purpose. We also believe that in order to materialize the objective of the company to repurchase shares, to pay increased dividends and to increase its capital expenditure, Millicom may divest many such subsidiaries in the upcoming years.
Recently, Millicom declared its fourth quarter earnings result. Despite revenue and earnings growth, Average Revenue per User (ARPU) and EBITDA margin dropped.
Significant growth in 3G mobile and broadband services coupled with mobile Value Added Service (VAS) business in Central/South America and Africa will serve as fundamental business catalysts. Additionally, management has decided to hike the dividend rate by a whopping 28.6% year over year and also added $300 million to its currently authorized share repurchase program for 2011.
However, decline in ARPU and EBITDA margin rate along with weak management outlook will remain a concern for the stock. Moreover, stiff competition from other telecom giants like Vodafone Plc (VOD), Telefonica S.A. (TEF) and France Telecom (FTE) will hamper Millicom’s market share.
We maintain our long-term Neutral recommendation on Millicom. Currently, Millicom has a Zacks #3 Rank, implying a short-term Hold rating on the stock.
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