The District of Medellín, as owner of EPM, presented to the Medellín Council the Draft Agreement No. 012 that requests authorization for the sale of the Company’s non-controlling interest in UNE EPM Telecomunicaciones SA (UNE) and Inversiones Telco SAS (Invertelco).
The reasons for the sale are directly related to the high competitive intensity and the capital requirements to guarantee sustainability in the market, which, combined with rapid technological obsolescence, generate a greater risk for EPM when participating in this industry. In addition, there is a risk that new capitalization needs may arise, a situation that materialized in 2023 when the Company raised the need for resources of 600 billion pesos, of which EPM contributed half.
It is important to highlight that EPM is focused on the development and growth of its strategic businesses, namely, electricity, natural gas, water and waste management to contribute to the development of the territories and contribute to the quality of life of the community. Therefore, all efforts are directed towards strengthening and improving as a utility company.
In the Medellín City Council, the Committee of Rapporteurs of Draft Agreement No. 12 is made up of Janeth Hurtado Betancur, Juan Carlos de La Cuesta Galvis and Luis Guillermo Vélez Álvarez, who will be in charge of leading the discussions.
EPM shared project with the Medellin City Council
After the District of Medellín presented to the City Council the Draft Agreement to authorize the sale of its non-controlling interest in UNE EPM Telecomunicaciones SA (UNE) and Inversiones Telco SAS (Invertelco), the EPM team, led by General Manager John Maya Salazar, met with the Medellín Council on August 1 to present the background, context and arguments for obtaining authorization to carry out the respective sales.
EPM will have spaces to provide information in a timely and transparent manner to the different audiences and interest groups so that they are aware of the Draft Agreement presented to the Medellín Council, always seeking to protect public assets and make the best decisions for the sustainability of the Company, the quality of life of the community and the development of the territories in which it is present.
The funds obtained from the sale will be entered into EPM’s budget. The company indicated that if the sale of the stake in UNE and Invertelco is authorized, it will direct the funds toward four areas that seek to continue promoting development.
The reasons that lead EPM to maintain its intention and need to carry out the sale processes of the shares in UNE and Invertelco remain valid, since they are directly related to the high competitive intensity, the high capital requirements to guarantee sustainability in the market, which, added to the rapid technological obsolescence, generate a greater risk for EPM when participating in this industry.
On the other hand, there is a risk that new capitalization needs will arise, a risk that materialized in 2023 when the company raised the need for resources of 600 billion pesos, of which EPM contributed half.
This is the ABC of the sale of shares of UNE and Invertelco:
How will the sales process be carried out, if the Medellín City Council approves Draft Agreement No. 012? The sales process will begin with the procedure established in Law 226 of 1995, which determines the process to be followed for the sale of State shareholdings in companies: this process establishes that in a first stage the shares will be offered to the recipients of special conditions and, subsequently, to the general public. Therefore, in this process there may be different natural and/or legal persons interested in participating and acquiring shares of UNE and Inversiones Telco.
In the event that the sale is not carried out in these two stages, UNE’s bylaws and its Shareholders’ Agreement establish the existence of a right of preference for the Company’s other shareholders, i.e., Millicom would have the opportunity to directly acquire EPM’s shares in UNE. And, finally, if Millicom does not exercise said Right of Preference, EPM could make a joint offer to the general public of 100% of the UNE shares owned by EPM and Millicom.
When will the sale take place? Once the authorization that the City Council of Medellín must give for the sale is obtained, all the activities necessary for the execution of the alienation process will begin. The deadline for carrying out or materializing the sale will be defined in the alienation programs and regulations that will support the alienation process, as established in Law 226 of 1995. In addition, the times stipulated in the Shareholders’ Agreement will be taken into account so that EPM can fully execute its Right of Exit.
Could Millicom be a buyer? If Millicom so decides, it could participate in the second stage of the alienation process, according to Law 226 of 1995, and be a buyer and, if it does not buy at that time, it could subsequently exercise its Right of Preference agreed in the statutes.
What does the public assets protection clause-EPM’s right of exit mean? It is a right granted to EPM in the Shareholders’ Agreement signed with Millicom at the time of the merger, by virtue of which the Company is granted successive mechanisms for the sale of its stake, while respecting its obligation to exhaust the procedure established by Law 226 of 1995, to which it is subject as a public entity. The validity of this right runs until December 31, 2026.
How does the public property protection clause work? In the event that Millicom decides not to participate in the sale process pursuant to Law 226 of 1995 and subsequently does not exercise its right of preference, EPM could bind Millicom to jointly offer to the market 100% of its shareholdings in UNE.
At what point can EPM use the public assets protection clause? If during the sale process according to Law 226 of 1995 EPM was unable to sell all of the shares, and in the event that Millicom does not exercise its right of preference in the purchase of these, EPM could make use of this special exit right, which is valid until December 31, 2026, in the case of UNE.
What benefits does this clause protecting public assets bring to EPM?
- Greater probability of a successful sale.
- Increases investment liquidity.
- It may generate interest for a larger number of investors.
Would Millicom have the option to reject a potential buyer? The sale of the shares is an autonomous operation of EPM, and is not subject to any restrictions or conditions beyond those established in Law 226 and the right of preference agreed in the UNE bylaws. Therefore, Millicom does not have the option to reject any potential buyer in this sale process, nor to object or question the result of said process.
How much will the company shares be sold for? The base sale price will be the one established in the corresponding alienation program and regulations, which define the price per share at which the shares owned by EPM in UNE and Inverteleco will be offered, in the first stage of Law 226, and will be the minimum base on which the sale process will be executed in the following stage of the alienation process according to the same law.
The price will be based on the technical study carried out by EPM, which will consider the value of its investment in the Company. This technical study will be carried out once the authorization for the sale is obtained from the Medellín City Council, and will be the main input for the EPM Board of Directors to decide the base sale price.
Will the Mayor of Medellín receive funds from this sale?
The money will be received by EPM and will be incorporated into its budget.
What will happen if the Council does not approve the sale?
If the Medellín Council does not approve the sale, EPM will continue to be a shareholder of UNE and Invertelco, and thus will remain exposed to the risks inherent to these industries, which could require that resources be allocated for new future capitalizations, limiting investment in EPM’s strategic businesses. This is taking into account the characteristics of the telecommunications industry, with the entry of new competitors and market concentration in a single operator, which could also put the value of the investment at risk. It should be noted that two risks have materialized, the first associated with capitalization needs, since it should be remembered that in 2023 UNE received a capitalization of 600 billion pesos from its partners, of which EPM contributed 50%. On the other hand, in 2022, EPM recorded in its accounting a deterioration in the value of its investment in UNE worth 1 trillion pesos, a situation that affected transfers to the District of Medellín.
Likewise, other risks are generated, such as:
- Impact on the value of public assets invested in UNE due to the lack of timely and comprehensive execution of the Right of Exit. Leaving public resources trapped in a company that is not controlled and managed by EPM.
- Risk of a new capitalization of UNE. Although in 2024 the company has shown a recovery of some of its key indicators, this risk remains latent.
What is the situation of UNE?
From the point of view of EPM as an investor, UNE has not generated the expected benefits. However, from the operational point of view, the results of the merger have been positive, just by looking at TIGO’s competitive position as the third operator in terms of revenue, third in the mobile business and second in fixed services.
Likewise, the company currently has the capacity to deliver convergent services, and has been able to allocate billions of pesos in investment for the improvement and updating of its fixed and mobile networks with resources generated by its operations. The integration of mobile networks with Movistar has already begun to generate benefits associated with cost savings and investments that have had a positive impact on the company’s EBITDA.
In the last three years (2021 to 2023), UNE’s losses amounted to 2.1 trillion pesos. However, UNE has presented a positive Ebitda during all the periods after the merger, an indicator that has been improving, going from an Ebitda of 1.3 trillion pesos in 2016 to 1.74 trillion pesos in 2023.