By David Roman and Leos Rousek
MADRID--Telefonica SA (TEF) Tuesday said it would sell most of
the stake it holds in its Czech subsidiary to local investment firm
PPF Group for 2.47 billion euros ($3.34 billion), a deal that
should help the Spanish telecom giant cut debt and refocus on key
markets such as Germany and Brazil.
Prague-based PPF is paying EUR2.06 billion for a 65.9% stake in
Telefonica Czech Republic AS--the country's top telecom operator by
number of customers and an important cash cow for Telefonica for
the last eight years--as soon as the deal is cleared by regulators.
PPF will also pay an additional EUR404 million over the following
four years.
Telefonica said it plans to keep a 4.9% stake in the Czech
company for now, but that it may sell it to PPF after the four-year
period.
The move comes after months of quiet talks between the parties,
which gained momentum on the back of Telefonica's sale of its Irish
operations in June, for EUR850 million. Telefonica executives have
said the company's priority remains cutting debt to below EUR47
billion by the end of this year, from EUR48.6 billion in July, to
reduce leverage and free up cash.
"This transaction reduces Telefonica's debt and leaves them
flexible to participate in Brazilian consolidation and further
investments in Europe," analysts at Bernstein Research said in a
note to investors.
Telefonica's deal with PPF, by itself, will cut the Spanish
company's debt by around EUR2.69 billion, at a time when debt-laden
Telecom Italia SpA (TI)--where Telefonica holds a large stake--is
contemplating options for its units in Brazil and Argentina, two
countries where Telefonica is already a major telecom player.
Telefonica is also taking over the German mobile arm of Dutch
telecommunications firm Royal KPN NV (KKPNY), a process that it
expects to complete by mid-2014.
For PPF, the move represents a significant, if relatively cheap,
gamble on the Czech telecom sector, since the country's regulator
has been trying to lure a fourth operator to the market while also
trying to push down prices and forcing incumbents to host virtual
mobile operators--two steps that Telefonica feared would hurt its
profitability there.
Telefonica's Czech unit has more than 7 million clients in the
Czech Republic and neighboring Slovakia. As part of the deal, the
firm will continue to use its current O2 brand, owned by
Telefonica, over the next four years.
To acquire the stake, PPF is launching a mandatory takeover bid
on all the company shares, including those listed in Prague, at a
discount of roughly 2% over Monday's closing price. The price tag
also compares with the EUR3.62 billion spent by Telefonica in 2005
to acquire its current stake in the Czech firm.
PPF said it would finance the transaction through EUR1.4 billion
of cash and a loan from a consortium led by French bank Societe
Generale.
"Telefonica Czech is virtually debt-free which makes the
transaction very attractive for PPF," said Tomas Mencik, an analyst
at Cyrrus, a brokerage, adding that the Czech company with assets
of over $3 billion has debts of about $160 million.
PPF is also active in Russia and China with assets ranging from
consumer finance to real estate, and is majority owned by Czech
business tycoon Petr Kellner, who has an estimated net worth of
$10.4 billion, according to Forbes magazine, which ranks him 106th
on its list of the world's billionaires for this year.
Mr. Kellner has sought to expand into telecommunications for
months, and PPF recently sold its Eastern European insurance
operations to Italy's insurer Assicurazioni Generali SpA
(G.MI).
Write to David Roman at david.roman@wsj.com and Leos Rousek at
leos.rousek@wsj.com
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