TPG (ASX:TPG) shares down 6% as founder sells $335m stake

The market has reacted savagely to news that TPG founder David Teoh has sold off millions of his shares. So, should you buy, sell or hold?

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The TPG Telecom Ltd (ASX: TPG) share price is in freefall on Friday morning as the market reacts to news about the telco's founder David Teoh.

In the first hour of trade, the stock price had sunk 6% to go for $6.22.

The trigger for the sell-off seems to be founder David Teoh's cashing in of 20% of his holding.

"Thursday evening saw Macquarie Group Ltd (ASX: MQG)'s equities desk seeking bids for a $335 million stake in TPG Telecom," said Shaw and Partners portfolio manager James Gerrish in his Market Matters newsletter.

"The auction was offered between a 1.8% and 4.8% discount to Thursday's close, which implies solid demand."

'More R&R' for Teoh?

The current TPG Telecom was formed after a 2020 merger of the original TPG, founded by Teoh in 1986, and Vodafone Australia.

Earlier this year he stepped down from the board.

"This sale represents about 20% of his holding — perhaps there will be 4 more such sales over the coming years," said Gerrish.

"The 66-year old billionaire might simply be deciding business is not exciting as it was or it's time to have more R&R."

In a statement to the ASX on Friday morning, TPG confirmed the sale had occurred and noted it was the maximum amount Teoh is allowed to sell right now.

"Mr David Teoh and his associates entered into an escrow agreement in June 2020 under which they must not dispose of, subject to certain exceptions, more than 20% of their aggregate shareholding in the company for a period of 24 months following implementation of the Scheme of Arrangement on 13 July 2020."

Buy, sell or hold TPG shares?

So, if you're holding TPG shares or are interested in buying, what do you do?

Gerrish believes Teoh's actions don't change the outlook on TPG.

"We don't see it as a reason to abandon the stock or sector, as opposed [to] the sale being a logical progression through time."

Telco shares have generally not fared well in recent years, and TPG is no exception. The TPG share price has dropped more than 28% since the merger.

"TPG now operates brands such as Vodafone, TPG, iiNet and Internode, making it a definite proxy to the general health of the Australian telco market," said Gerrish.

"We feel the huge merger in 2020 should eventually see benefits but buying at a higher price after a decent FY22 report makes more sense in our opinion. i.e. Let's see some runs on the board."

He added that "synergistic benefits" often arrive later than what corporate boards expect.

"We see long term defensive value closer to the $6 area, with support likely from a fully franked yield which is likely to be in excess of 3%."

Motley Fool contributor Tony Yoo owns shares of Macquarie Group Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited and TPG Telecom Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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