Bloomberg News

Telefonica Said to Work With UBS, JPMorgan on German IPO

July 16, 2012

Telefonica Said Working With UBS, JPMorgan for German Unit’s IPO

Telefonica is discussing a sale of a 20 percent stake in the O2 division for about 1.5 billion euros, one of the people said, asking not to be identified because the plan is confidential. Photographer: Angel Navarrete/Bloomberg

Telefonica SA (TEF), Spain’s largest phone company, is working with UBS AG (UBSN) and JPMorgan Chase & Co. (JPM:US) to prepare for an initial public offering of its German unit, according to people with knowledge of the plans.

Telefonica is discussing a sale of a 20 percent stake in the O2 division for about 1.5 billion euros ($1.8 billion), one of the people said, asking not to be identified because the plan is confidential. The company intends to hold the sale this year and the final size will depend on demand, the person said. It may add other banks to help with the process.

Spain’s former phone monopoly said in May it will explore stock sales for O2 Germany and its Latin American businesses as the operator speeds up attempts to cut its net debt of more than 57 billion euros. O2 vies with Royal KPN NV (KPN)’s E-Plus as the two smaller of Germany’s four wireless network operators, led by Deutsche Telekom AG (DTE) and Vodafone Group Plc. (VOD)

“It’s going to be a very difficult deal amid the current market environment,” said Nuno Matias, an analyst at Espirito Santo in Lisbon. “It needs to explain to investors what the long-term prospects would be, such as whether or not there could be any potential understanding with Slim to consolidate E- Plus.”

Officials at Madrid-based Telefonica, JPMorgan and UBS declined to comment.

E-Plus Deal?

Telefonica and KPN had explored a combination of their German units and an IPO of the joint carrier earlier this year while the former Dutch phone monopoly was fending off an unsolicited offer by Carlos Slim’s America Movil (AMXL) SAB. America Movil won the 28 percent stake it sought in KPN on June 28, after increasing its holding in Telekom Austria AG (TKA) the same month.

Spain’s Telefonica and The Hague, Netherlands-based KPN had been in talks about a possible merger of their German operations for the past three years, another person familiar with the matter said.

After Slim’s offer for KPN was announced in May, KPN accelerated the talks with Telefonica, the person said, asking not to be identified because the talks were private. The companies reached a deal for Telefonica to buy the stake Slim wanted to acquire, and then consolidate the carriers’ German businesses, the person said.

The deal collapsed after credit rating companies warned Telefonica could be downgraded to junk status if it were to take on any more debt, the person said.

Shares Decline

Eight IPOs have been announced in Germany so far this year, down 53 percent from the 17 announced in the year-earlier period, according to data compiled by Bloomberg. Of those, Evonik Industries AG and Schiesser Group AG pulled their plans. Five of the six IPOs that have price were for Chinese companies, including Vange Software Group AG (VWA), a provider of information- technology services.

Telefonica’s German unit had wireless-service revenue of 758 million euros last quarter, making it the smallest of the country’s mobile-network operators. The division, which also offers fixed-line phone and Internet services, reported 18.6 million mobile-phone customers as of March 31.

Atento Sale

O2 and E-Plus would have a combined mobile-phone customer base of 41.7 million users, which would leapfrog Vodafone’s 36.5 million and Deutsche Telekom’s 35.1 million. Based on wireless- service revenue in the first three months of this year, a combined E-Plus and O2 remains smaller, with about 1.53 billion euros, compared with Vodafone’s 1.7 billion euros and 1.66 billion euros for T-Mobile.

Telefonica fell 2.2 percent to 9.75 euros at the close of trading in Madrid. The shares had fallen 27 percent this year, valuing the company at about 44.4 billion euros.

The Spanish operator last month sold a $1.4 billion stake in China Unicom (Hong Kong) Ltd. to help cut debt. It has also put its call-center division Atento on the block. Last week, Telefonica said it had received several offers, without identifying the bidders. The company is seeking about 1 billion euros for the asset, people familiar with the matter have said.

To contact the reporters on this story: Aaron Kirchfeld in London at akirchfeld@bloomberg.net; Manuel Baigorri in Madrid at mbaigorri@bloomberg.net; Zijing Wu in London at zwu17@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net; Jacqueline Simmons at jackiem@bloomberg.net


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