What Telefonica did in Germany this summer

Just what the doctor ordered: the Spanish market needed a corporate operation with sufficient depth and wide impact to attract international attention towards its largest listed companies. Telefonica, with its €4.14-billion acquisition of Dutch KNP’s German subsidiary, has brought investors’ eyes to Madrid following good news for once.

Moreover, Telefonica’s move came in at the opening of the mid-year results season for several Spanish companies. According to Bloomberg estimates, some of the first firms to present data have beaten expectations–Gast Natural, Enagás and Bolsas y Mercados Españoles.

This stream of positive information, to which we could add UBS and Goldman Sachs recommending buying BBVA stock, has pushed the Spanish index Ibex up to reach above the 8,000 point mark and realising superior gains than the rest of the European indexes.

Then the Spanish Treasury sold €3.52 billion in debt paper at three and nine months with a much lower cost than in the last auction.

The top headlines were for Telefonica, in any case, and deservedly. The company broke with its desinvestment and deleverage plans of the last 12 months, during which it has sought to drop non-strategic assets–its Irish subsidiary, Atento, Hispasat–while increasing its capital base with the sale of 40% of assets in Central America and a listing in Germany.

Telefonica had an important reason for its well-timed U-turn: the Spanish corporation wanted to conquer a mature market with scope for expansion, and Germany’s shows a mere 27% presence of smarphones (it is 50% in Spain).

Has it been the right decision? The company is committed to cut debt levels down below €47 billion by 2014. Also, it promised to pay a €0.75 dividend per share against 2013 results, something some experts disagree with. But today, it stock price is up by more than 2.5% and risk agency Fitch on Monday said its rating had not been affected by the acquisition. Not bad at all.

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