Jose Maria Alvarez-Pallete, who will be in his fifth year at the helm of Telephone, has successfully closed its second major corporate operation in six months and is already drawing a scenario for the Spanish multinational with a debt -a great historical headache of the company- far from the figures registered when he acceded to the presidency, in April 2016, replacing Cesar Alierta.
The sale of the towers of Telxius to American tower for 7,700 million euros, communicated this Wednesday to the CNMV, and that the market has concluded, granting the operator a revaluation potential of 17%, will allow Telefónica to have 4.6 billion to reduce your current debt. According to the multinational’s own calculations, the leverage ratio it will drop by 0.3 times, to stand at around 2.5 times -debt over ebitda-. In this way, Telefónica would already be far from the financial position of two of its main European rivals, Deutsche Telekom (3.1 times) and Vodafone (3 times).
Only with this operation, Álvarez-Pallete will leave the debt below 32,000 million euros. At the end of September, the latest data known to date, the Group’s debt was 36,676 million, to which we must subtract the 4,600 million from the sale of Telxius -Telefónica has 50.01%, KKR 40% and Amancio Ortega the other 9.99% -.
Operation in UK
To this must be added the 6.4 billion euros that the operator will receive from Virgin under the merger agreement of its British subsidiary O2, which announced at the end of May and pending approval of the UK regulatory authorities. Virgin and Telefónica are going to join their British subsidiaries to create the first operator in the country by number of customers and the merger agreements include the payment by Virgin to Telefónica of the aforementioned 6,400 million euros, which the operator will use to reduce debt.
Álvarez-Pallete has closed two operations that leave him 11,000 million on the table to reduce the debt, which would be in the vicinity of 26,000 million. When he took office in April 2016, it was $ 52.2 billion
In this way, Álvarez-Pallete has closed two operations that have left him 11,000 million euros on the table to reduce debt. All those funds destined to reduce the debt, this would be in the environment of 26,000 million euros. When he took office in April 2016, Telefónica’s debt was 52,200 million of euros. The reduction would reach 50%, the leverage ratio would remain below 2.5 times and would cease to be a headache for the management team -2.6 times Caixabank analysts calculate by the end of 2021-. It should also be remembered that Telefónica adds 8,000 million euros in hybrid debt issues, which does not count as debt for accounting purposes.
The market applauds the operation for the reduction of debt
It is precisely the impact of the operation on the Group’s debt that has been one of the main factors that have led analysts to applaud the sale of Telxius to American Tower. The market highlights that the sale price is just over 30 times the company’s EBITDA, which far exceeds the price paid by Cellnex for the Hutchison towers in Europe a few weeks ago. They also discount that the high price was due precisely to Cellnex’s bid for these assets, which would have closed the way to the expansion of American Tower – world leader – in Europe.
Since Morgan stanley They have highlighted the operation and assure that « it is positive since it contributes to Telefónica’s deleveraging path, which is fundamental for the price from our point of view ». For its part, from Citibank It is pointed out that the price of the Telxius towers that they estimated was 5,800 million euros, so the final sale price grants Telefónica an additional 1,000 million euros to reduce its debt. « This should give Telefónica credit before the market, » they point out in their report on the operation.
For the experts of Kepler, the operation is also positive due to the final sale price and the consequent debt reduction. « We consider this move to be relevant, given the amount of leverage it will provide, » they say. From the Santander They also point out that Telefónica could sell the submarine cable -which has not been sold to American Tower- for 2,100 million euros, which would further alleviate the debt. Santander also warns that by selling all of Telxius the operator could paralyze the sale of fiber in Spain.