Telefonica Has One Headache Less After Sale Of Stake In Telxius

Telefonica's chairman, Alvarez PalleteTelefonica's chairman, Alvarez Pallete

Nearly six months after Telefónica announced the IPO of its infrastructure affiliateTelxius, venture capital firm KKR said it plans to buy 40% of the company for 1.275 billion euros, or 12.75 euros per share. And it means one headache less for the telecommunications giant. The sale will be made up of two parts: a transfer of 62 million shares – or 24.8% of Telxius’ capital – for 790.5 million euros and two transactions involving 38 million shares each – or 15.2% of capital – for 784.5 million euros.

Although the deal is still pending certain regulatory authorisations, the majority of analysts agree that it’s good news for Telefonica, which will continue to have a controlling stake in its affiliate but will manage to cut its debt organically.

The transaction implies a valuation for the company including debt of 3.678 billion euros and an Equity Value of 3.188 billion. “This is good news, although the Equity Value is in the mid-low range established by the company,” ACF analysts point out. Bankinter analysts agree: “The price agreed on is at the low end of the valuation established for Telxius’ frustrated IPO.” The valuation range for Telxius’ planned stock market debut was 3.000-3.750 billion euros (12-15 euros per share).

“This outcome seems the most logical. On the one hand, given the great difficulty there was to sell it in the past but, on the other, given Telefónica’s refusal to sell the company at any price. Telefonica’s biggest problem is its debt,” Bankinter says. The company has net financial debt of approximately 50 billion euros, which it hopes to reduce with this operation. Furthermore, as Bankinter highlights as a positive point, “this will also ease tensions over its rating and, as a result, its financing costs.”

ACF flags that the operation“fits in with the company’s policy for managing its portfolio of assets,based on creating value and positioning the group strategically.” Renta 4 analysts expects there will be a postive impact on Telefonica’s share price in the wake of the transaction. They believe the company “will end 2016 with net debt of 48.632 billion euros (3,3x EBITDA 2016).”

“With this operation, the company provides its balance sheet with more equilibrium (it represents 2.6% of the net financial debt reported in the first three quarters of 2016) at a good operational moment, which could boost the share price,” says experts at Norbolsa, who also consider the divestment of part of Telxius as a positive move.