Jazztel: From 101% Gains to a 0.19 Euro Floor

Jazztel: From 101% Gains to a 0.19 Euro Floor

It was December 2006, and Jazztel smelled like a jackpot. The share had accumulated a 100% rise in less than twenty days, and the warning was sharp: you had to be inside before the big move, because those who entered late would be left watching from the sidelines. Rumors of an alliance with Vodafone and the expectation of a deal with Telefónica fueled the fever. A year later, that same value promising double-digit gains was trading at 0.19 euros. The gap between the jackpot and ruin was etched in a very long trinc-up, section by section, month by month.

The 120 Million Euro PACEO with Société Générale

On January 4, 2007, Jazztel notified the CNMV of the start of a prospecting period. The instrument was a PACEO: a financing line structured in several issuances of shares worth up to 120 million euros, fully subscribed by Société Générale, which committed to keeping a portion and placing the rest with the market or third parties. The optimistic reading was that the French entity aimed to become a stable shareholder. The skeptical reading was that it was printing money hand over fist and that the small shareholder would end up paying for the party.

On February 1, 2007, the relevant event arrived: 80 million shares placed without problems. For some, the demand demonstrated that institutional money was very interested in the value. For others, it was pure financial engineering wrapped in the guise of a strategic partner. It was not the first time such a mechanism was used, and the comparison with an old issuance of bonds with loaned shares hovered over every analysis.

Vodafone, Telefónica, and the Quad Play

The star story was an alliance with Vodafone to offer the quad play: fixed, mobile, ADSL, and television. This was joined by peace with Telefónica. The signing of an out-of-court agreement ending three legal actions was taken for granted, allowing Jazztel to operate as a mobile virtual network operator, in addition to receiving financial compensation. Paper can hold everything, and rumors were enough for the share to rise 10.75% in a single session, the best performer in the continuous market that day.

Rumors were joined by others: that Deutsche Telekom was studying alternatives for its presence in Spain and that the sale of Ya.com was not materializing, so a merger with Jazztel appeared on the horizon. Talk of adding contracts and facing Telefónica with its own network. Everything fit on paper. Nothing was confirmed with a signature.

The Losses That Did Not Fit the Story

The numbers told a different story. Jazztel closed the first nine months with net losses of 176.58 million euros, 55.4% higher than in the same period of the previous year. Business volume reached 222.67 million, almost 31% higher. The dissonance was evident: revenue up and the accounting hole even higher. Those who maintained that the company was worth its network admitted a wide margin for improvement; those looking at the income statement saw a bottomless pit.

The Fall: From 0.71 to 0.19 Euros

The correction came and was not gentle. From trading at 0.71 euros, it went to 0.66, then 0.35, and from there to the floor. In seventeen days, the share dropped 15.78% and closed at 0.32 euros. Subsequent messages already spoke of 0.22 and 0.19. In parallel, the recommendation to sell crept into specialized press while faith held. Some bought in the heat of a broken bullish channel and plunged into the crash; the chart promised, and liquidity swept away those who entered with less patience.

Faith That Runs Out in Warrants

Not even the most optimistic forecasts were met on time. The hypothesis circulated that Jazztel would emerge from the red in the fourth quarter of 2008, with a net profit of up to 50 million euros, and between 60 and 100 million in 2009. ADSL projections spoke of reaching 275,000 or 300,000 subscribers by the end of 2007 and exceeding 500,000 and 750,000 in the trinc two years. In parallel, leveraged products took their toll: those who had bet with warrants recognized losses close to 5,000 euros. Confidence in the value was notable; the money at stake, according to the story itself, was quite smaller.

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Here the material ends and so does the optimism. The accounts never arrived on time, the strategic partner remained a rumor, and the share hit bottoms many considered impossible. The usual questions remain open: whether the network was worth it, whether the capital increases diluted the shareholder, or if only patience was lacking. Nobody closed it.