The Cabinet officially announced the sale of its 51% stake in Cesky Telecom to a Deutsche Bank/TDC consortium, at CZK 340 per share. TDC will bear management responsibility, and, based on its performance, it might receive CTel shares over a five-year period.
It is expected that TelSource (owned by KPN/SwissCom consortium) will seek to sell its 27% stake in Cesky Telecom to Deutsche Bank/TDC as well.
The privatization completion enables important strategic steps to be taken by Cesky Telecom, of which the main options are: acquisition of the remaining 49% stake in Eurotel; divestiture of the 51% Eurotel stake; or leveraging CTel and paying a large extraordinary dividend. While we would favor the first option, the other two are not significantly inferior in our view.
A complication for the stock could arise in the form of possible low transparency during the implementation of a chosen strategy. This concern leads us to reiterate our short- and long-term accumulate recommendations, and our target price of CZK 380 per share.
(Jiri Soustruznik)