With the advent of a new European Commission under the (likely) Presidency of Jean-Claude Juncker, Digital Europe will rank even higher on the political agenda if we believe the statements on his website. There is a risk however that the new Commission may continue in the ineffective path of the previous one by promoting the emergence of “pan-continental telecoms networks”. In this new report, published today we examine an alternative route to a Digital Europe. We look at structural separation from a capital markets perspective and come to very interesting conclusions for policymakers, activist shareholders and supervisory board members of European incumbents. Our analysis of three case studies suggests that structural separation via spin-offs should be on the political and more importantly on the corporate agenda as it may be better suited to align various stakeholder interests – if it is done properly.
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Table of Contents
Executive Summary 1
I. Introduction 4
Methodology 5
II. How can a spin-off add value? 6
III. What is a spin-off anyway? 7
Chorus: the marathon man that stumbled on the last mile 9
NBNCo: structural separation with too many twists 11
Telecom Italia: a creative interpretation of structural separation 13
IV. Beware the reference scenario 14
V. How to mastermind a spin-off transaction 16
VI. Averting trouble in a post spin-off world 20
VII. Conclusions & Recommendations 22
Governments and policy makers 22
Investors 22
Supervisory Boards 22
Appendix 23
Table of Exhibits
Exhibit 1: Europe is making slow progress towards Digital Agenda broadband targets
Exhibit 2: Spin-offs took place in multiple industry sectors over the past 18 months
Exhibit 3: A spin-off creates an independent company through the distribution of new shares
Exhibit 4: In a carve-out or sale, the parent company sells shares to investors
Exhibit 5: True telco spin-offs are hard to find (summary)
Exhibit 6: Chorus struck a unique deal with the Crown as a result of the UFB project
Exhibit 7: Telecom’s share price has performed well since the Chorus demerger
Exhibit 8: How Telstra made a (very) nice deal
Exhibit 9: Telstra shares have outperformed the market since shareholders voted to structurally separate
Exhibit 10: Telecom Italia had a creative interpretation of structural separation
Exhibit 11: Telecom Italia’s structural separation idea did not overcome the limitations
Exhibit 12: A new deal for European telcos?
Exhibit 13: The ‘unbundler’ model could appeal to former incumbents
