The Polish shareholders voiced their initial positive response to TDC's offer to sell its 19.8% stake in Polkomtel, Poland's third mobile operator, to the rest of the other shareholders on a pro-rata basis. At the same time, they maintained their longer-term goal of disposing of Polkomtel. Vodafone, which is widely seen as the ultimate majority owner of Polkomtel, also maintained its intention to increase its stake, currently at 19.8%. Existing shareholders of Polkomtel could exercise their pre-emptive rights in line with shareholders agreement. TDC's offer values Polkomtel at EUR 4.39bn, implying an EV/subscriber of some EUR 477, based on our 2005 forecast subscribers, and is in line with the TPSA/Centertel transaction executed in 4Q05. Based on the preliminary information, the offer price appears fair and in-line with recent sector transactions.
Should KGHM, PKN Orlen and PSE exceed the 75% ownership threshold in Polkomtel, they would be able to change the shareholder’s agreement. We view it as a factor that could possibly convince Vodafone to eventually offer a higher control premium for the majority stake in Polkomtel. However, the big question now is whether Polish shareholders would be able to act in a coordinated way, after they failed to exit the investment in Polkomtel last year. We view their initial unanimous response positively. We reiterate our Buy rating for PKN Orlen with PLN 69.0 fair value estimate. We reiterate our sell rating for KGHM with 69.2 fair value estimate.