Belgacom IPO March 2004 Professor André Farber Solvay Business School Université Libre de Bruxelles

June 13, 2015 Belgacom IPO |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 State200m + 1 ADSB178m Financial partners10m Pricing range: €23 to €26.50

June 13, 2015 Belgacom IPO |3 Pricing the issue Methods: Using multiplesP/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

June 13, 2015 Belgacom IPO |4 Review of theory Interest payments are tax deductible: V = V U + PVTS Assuming debt is permanent and riskless: V = V U + T C D

June 13, 2015 Belgacom IPO |5 Beta Asset calculation

June 13, 2015 Belgacom IPO |6 Valuation

June 13, 2015 Belgacom IPO |7 Sensitivity analysis

June 13, 2015 Belgacom IPO |8 Increasing the level of debt If Belgacom were to borrow €1 billion. ΔV = 34% × €1,000 m = € 340 m

June 13, 2015 Belgacom IPO |9 Using the WACC With L = D/V or

June 13, 2015 Belgacom IPO |10 Application

June 13, 2015 Belgacom IPO |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