Belgacom IPO March 2004

1
Belgacom IPO March 2004

• Professor André Farber
• Solvay Business School
• Université Libre de Bruxelles

2
Background to the IPO

• December 1994 Belgacom transformed into a
  limited liability company
• March 1996 Belgian State sells 50 - 1share to
  ADSB, a consortium of 3 strategic investors
  Belgian financial partners
• 2003 ADSB wants to exit decision to go public
• March 2004
• shares 400m
• Belgian State 200m 1
• ADSB 178m
• Financial partners 10m
• Pricing range 23 to 26.50

3
Pricing the issue

• Methods
• Using multiples P/E, EV/Sales, EV/EBITDA
• Dividend Discount Model
• Free Cash Flow Model
• Setting the discount rate
• Using beta of other telecom companies
• But telecom companies have different levels of
  debt

4
Review of theory

• Interest payments are tax deductible
• V VU PVTS
• Assuming debt is permanent and riskless
• V VU TC D

5
Beta Asset calculation
6
Valuation
7
Sensitivity analysis
8
Increasing the level of debt

• If Belgacom were to borrow 1 billion.
• ?V 34 1,000 m 340 m

9
Using the WACC
With L D/V
or
10
Application
11
Epilogue

• Final pricing 24.50 per share
• Successful trading debuts 5 in opening day, in
  downmarket
• Largest European IPO in 3 years
• Largest offering ever in Belgium