Letter to the Chairman of Masmóvil Ibercom S.A.

LONDON, July 9, 2020 /PRNewswire/ --

Masmovil Ibercom, S.A.
Avenida de Bruselas, 38
28108, Alcobendas, Madrid
By email: [email protected]

Attention: D. Eduardo Díez-Hochleitner Rodríguez (Chairman of the Board of Directors)

In London, on 8 July 2020

Dear Mr Díez-Hochleitner,

We refer to the request for authorisation of a public takeover bid launched by Lorca Telecom Bidco, S.A.U. (the "Bidder") on all of the shares of Masmovil Ibercom, S.A. ("Masmovil"), which was announced on 1 June 2020 (the "Bid").

On 23 June 2020, in our condition as shareholders of Masmovil, we filed a letter with the Comisión Nacional del Mercado de Valores ("CNMV"), a copy of which is attached hereto as Annex 1, in which we declared our great concern about the terms on which the Bid had been made.

In furtherance of such letter, we hereby address you, in your condition as Chairman of the Board of Directors, with the aim to reiterate our serious concerns and to convey you the need for the Board as a whole, and each and all of its members, when analysing the Bid, in relation to any and all decisions and actions that may be related with it and with the Bidder, and throughout its processing, to always act in the interest of Masmovil and its shareholders, strictly complying with your legal duties and responsibilities. For such purposes, we hereby request you to make a copy of this letter available to each and all members of the Board of Directors.

It is not our intention to reiterate in this letter the concerns addressed in the letter filed with the CNMV. However, we would like to draw your attention to the issued dealt with in further detail below.

1.- Conflicts of interest

As stated in the letter filed with the CNMV, we consider that both the proprietary directors appointed by the shareholders that entered into the irrevocable undertakings with the Bidder and the CEO are affected by a conflict of interest, given the terms of the Bid as reflected in the request for authorisation.

We are conscious of the creation, on 12 June 2020, of a Steering Committee within the Board of Directors, whose functions "include securing the independence and transparency of the TOB process, the evaluation of the offer, the assessment of measures that could be beneficial for MASMOVIL's shareholders or the elaboration of information for the Board". However, we do not believe that the creation of such Committee has resolved the legal concerns affecting a considerable number of members of the Board due to conflicts of interest.

In this sense, and firstly, the time of creation of such Committee seemed surprising to us (having been created after the execution of the "Agreement in relation to the Bid" and the public support shown by the Board as a whole to the Bid on 1 June).

In addition, it is a concern for us that the CEO has become a member of such Committee when, according to the terms of the request for authorisation of the Bid, it is clear that there is a severe conflict of interest affecting him. In this sense, as reflected in the request for authorisation, in the course of the preparation of the Bid, the Bidder has reached agreements with Masmovil in relation to the continuity of the CEO and his team, the continuity of the strategic plan led by him and the continuity or improvement of the team's compensation (the request for authorisation even states, literally, that a new incentive plan will be negotiated by the Bidder with the management team "represented, for such purposes, by the current CEO"). Furthermore, in the "Agreement in relation to the Bid", in relation to the proposals for amendment of Masmovil's directors' remuneration policy, to be submitted to the General Shareholders Meeting (and which include an amendment of the terms of the agreement with the CEO), the Bidder undertakes, not only to respect such amendments, but even to support them with its voting rights in Masmovil should it hold any at the time of General Shareholders Meeting.

There is, therefore and in our opinion, an evident conflict of interest that makes it mandatory for the CEO not to be included in the Steering Committee and, additionally, to abstain from taking part in deliberation or voting of any resolutions related to the Bid.

We hereby request you, in connection with the above, express confirmation on which specific members of the Board of Directors of Masmovil will abstain from deliberating or voting on the report to be issued by the Board as requested by section 24 of Royal Decree 1066/2007 in relation to the Bid, and on whether such members did abstain or not from deliberating and voting on the resolutions passed in relation to the execution of the "Agreement in relation to the Bid" and the granting of public support to the Bid by the Board of Directors. We firmly believe that publicity of such criteria is of the utmost interest for Masmovil's shareholders who do not have access to the Board, with the aim to assess the possibility of meaningful independent behaviour by the Board, protective of the interests of Masmovil and all its shareholders, throughout the processing of the Bid and until it is settled.

2.- Information on upcoming corporate transactions

On 12 June 2020, i.e., only 11 days after publication of the Bid's authorisation request, and after publishing (on the same date but earlier), both the creation of the Steering Committee and the admission to processing of the Bid by the CNMV, Masmovil sent several communications of privileged information (or other material information) to the CNMV, relating to:

Subsequently, on 22 June 2020, Masmovil issued a new communication of privileged information to the CNMV in relation to the execution of new agreements for access to both its fix and mobile networks. This last transaction, according to the release, would entail for Masmovil annual cost savings of 28 million euros. This figure would represent an increase of 6% in relation to the company's EBITDA for 2019.

As recognized by Masmovil in its official release dated 1 June 2020, also delivered to the CNMV, the company "had negotiations and conversations with the Consortium on the Offer, which included a confirmatory due diligence process by the Consortium, as well as the signing of an agreement between the Bidder and the Company regarding the Offer, whose main terms are reflected in the Request made by the Bidder, and that has been authorized by MASMOVIL's Board of Directors and subscribed by the parties today."

We think it is relevant to know and clarify whether the Bidder had privileged information or, at least, material non-public information, provided by Masmovil before the Bid was launched and announced, and how this circumstance has impacted in the determination of the Bid's price, which does not incorporate the expected increase in Masmovil's quotation prices upon announcement of the aforementioned transactions (which ought to be at the time in an advanced negotiation phase), or any other which may be foreseen for the short or mid-term, and does neither incorporate the implicit improvement in Masmovil's value. This would have very serious consequences given its potential legal implications, not only from the perspective of takeover bid regulations, but also from the perspective of market abuse regulations.

The terms of the request for authorisation seem to reflect clearly, in our opinion, that such was the case, given the continuous references made therein to potential corporate transactions.

In any event, we consider, as already reflected in the letter submitted to the CNMV, that such announcements are positive and will improve, in our opinion, significantly Masmovil's financial situation. As such, they should be fully incorporated into any assessment to be made of the price offered in the Bid, in order for such price to meet the necessary requirements to be considered an "equitable price" as required by the Securities Market Act and Royal Decree 1066/2007.

By means of this letter, we urge, in the same sense, the Board of Directors of Masmovil to take into account both such transactions and the evolution of Masmovil's share quotation prices after the announcement of the authorisation request when required to issue the report required by section 24 of Royal Decree 1066/2007. If this is not considered, it must be noted that only the shareholders that have entered into irrevocable undertakings with the Bidder (which have undertaken to invest in the Bidder's vehicle if the Bid is successful) would benefit from any improvement or increase in value of the company that may take place during such period or which may derive from circumstances not taken into account at the time of launch of the Bid, which is foreseeable considering the aforementioned facts. If this is not considered, this would be in detriment of the "equality of treatment" principle applicable to shareholders and the duty of the Board, as a whole, and of each and all of its members (including, in particular, independent directors), to procure the inalienable protection of minority shareholders. 

We deliver a copy of this letter to the CNMV considering the need for it, as supervisory body, to have knowledge of all elements affecting the Bid in order to procure an adequate protection of the interests of Masmovil's shareholders and the Spanish market generally.

Thanking you in advance for your attention, we will expect your reply, and will be available for any additional information you may require.

Yours faithfully,

Polygon Global Partners LLP

Contact: Polygon Investor Relations ([email protected]).

SOURCE Polygon Global Partners LLP