The capital increase of €3.4 billion was required to buy French firm Vivendi and its Brazilian subsidiary GVT. Telefónica is now free from its investment in Italy, having concluded that strategic investment in Italian firms can become tiresome.
This is in addition to the sale of O2, the UK subsidiary of Telefónica UK, a move that will provide Telefónica with liquidity to reduce its debt, which remains a strategic commitment of the company.
Telefónica is restructuring its debt to extend maturities and reduce its costs. More importantly, the firm is set to offer multiple telephone services that will include TV and broadband, which should increase revenue and provide added value.
The capital increase in the parent company involves adding an additional 6% of capital with a discount of 18% on the previous share price. The share price has stayed above €13 per share during the increase, near the highest level seen in the last two years of €14, but still some way below the high of €28 seen earlier in the century.
The group’s share price has disappointed analysts, whose opinions are divided on the future performance of the stock. €13 per share seems to be a lacklustre improvement, but uncertainties surrounding Brazil and indeed fall of the price of the euro has undoubtedly weighed on the price.
Telefónica has met its objectives on profits and dividends, but the markets expect more. This year Telefónica has been remoulded with the company taking several important strategic decisions, how those decisions impact the profit and loss account remains unclear.