Telefónica gave a coup yesterday by communicating the agreement for the sale of Telxius’ telecommunications tower division, also owned by KKR and Pontegadea, to the American giant American Tower, for 7,700 million euros. The agreement includes 30,722 sites, with two separate transactions (one for the business in Europe and one for Latin America).
But there will be more. The teleco will continue with the divestments of assets with the aim of raising value and reducing debt. The company said yesterday that Telefónica Infra, a unit created at the end of 2019, which had 50.01% of Telxius capital among its assets, is ready to channel the traffic explosion and bring out the value of a unique portfolio. According to Telefónica, the management team of this company will continue to focus on the development and monetization of towers, distributed antenna systems, data centers, Projects greenfield fiber and submarine cables, among others.
These assets include 50% of the capital of CTIL, the investee company together with Vodafone, which groups their respective locations in the United Kingdom. Last Monday, both groups announced an agreement to monetize CTIL. Vodafone announced its intention to integrate its 50% into its Vantage Towers tower division, which is finalizing its IPO. Telefónica, for its part, contemplates from entering an investor to its complete sale. Once the Telxius deal is announced, its sale seems more likely. Telefónica could also sell the towers that it still has outside of Telxius.
Within this division, the operator plans the sale of the submarine cables division. In fact, it has contracted Société Générale and Greenhill for the sale of these assets.
In the market there is also the option that Telefónica can sell fiber optic networks. Citi, in fact, valued the fiber network of Telefónica España last December at 18,000 million euros, and spoke of “potential silver bullet” to reduce debt.
The teleco, until now, has ruled out this alternative, although, for the new fiber deployments in countries such as Chile, Brazil and Germany it has opted to create investment vehicles in which financial partners are admitted. In the German case, Telefónica has established an agreement with Allianz.
Along with infrastructure assets, Telefónica keeps the front open for the possible divestment of Hispam assets, a division that groups businesses in Latin America, with the exception of Brazil.
In mid-September, the interest of Liberty Latin America, the former Liberty Global subsidiary, for the Telefónica subsidiaries in Colombia and Ecuador transcended. Both groups have already launched corporate operations. Last July, Liberty Latin America agreed to purchase Telefónica Costa Rica, for almost 500 million dollars, including debt.
In the market there are expectations about the possible movements of Telefónica. With regard to the operation with Américan Tower, Telefónica indicated that the attributable capital gain will amount to 3,500 million euros. “Once the operation is completed, the group’s net financial debt will be reduced by 4,600 million euros and the leverage ratio by 0.3 times,” said the teleco.
At the end of the third quarter, Telefónica’s net financial debt was 36,676 million euros without leases (43,000 million when included), the lowest level in more than a decade, with a leverage ratio of 2.77 times the oibda after of leases (OIBDAaL). Telefónica explained that the renewal conditions do not include any clause “all or nothing” additional. Telxius’ tower business generated an estimated OIBDAaL during the last twelve months of 190 million euros. If this figure is adjusted considering the total impact of the German portfolio acquired by Telxius in June, the implicit multiple over pro forma OIBDAaL would be 30.5 times.
The president of Telefónica, José María Álvarez-Pallete, pointed out that “this is an operation that makes strategic sense within the roadmap. American Towers was our second supplier after Telxius ”. The executive added that “after this great operation we will continue to focus on our most ambitious objectives: the integration of O2 with Virgin in the United Kingdom, the purchase of Oi’s mobile assets in Brazil and the reduction of debt.”
Investors positively valued the operation with Américan Tower. Thus, Telefónica shares bounced 9.6% yesterday, closing at 3.94 euros. The matildes They thus take a break after the punishment of 2020, when about 48% were left, in the midst of the serious crisis generated by the Covid.
Different analysts were favorable to the transaction. According to UBS, Telefónica has received 800 million euros more for these assets than expected by the market.
Caixa pointed out that this is positive news for Telefónica, which will help reduce debt and crystallize value. “We value Telxius’ tower business at 5,000 million, with multiples of 20 times Ebitda, below the valuation obtained by the company,” said the entity. Santander indicated that it will have a clear and relevant impact on Telefónica’s share, not less than an increase between 6% and 7%.