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Hellenic Telecom (OTE) – The M&A Risk

31 January 2014 by HCM

Following last year mid-summer’s wobbles, OTE (Hellenic Telecommunications Organization S.A.) had a great run until mid-January 2014. Its 5 year risk premium shrunk from 800bps to less than 300bps (i.e. almost 18% in cash price). Then, a couple of weeks ago, it was caught in the Emerging Markets related weakness (the proximity of Greece and Turkey did certainly not help). But this week, Deutsche Telekom CEO had a meeting with Antonis Samaras – the Greek Prime Minister – and the management of OTE. That was enough to stir articles in the Greek press that DT (Deutsche Telekom AG), in order to boost its current stake, might buy the 10% of OTE still owned by the Greek state. If the 5 year CDS of DT did not bulge, the 5 year risk premium of OTE was indicated 80bps tighter (i.e. almost 4% in cash price) when the rumour emerged, and eventually settled 40bps tighter.
Following up yesterday’s comment, it is interesting to note that despite the outperformance of OTE, the iTraxx Xover index (which includes OTE) meaningfully underperformed the iTraxx Main index, confirming the decompression theme that emerged over the last few sessions.