O2: Float or flog. What's it going to be, Telefonica? Spanish telco Telefonica has indicated it could soon hold an IPO of O2 in order to raise funds to pay off debt. Telefonica has previously made noises about exiting the UK market after the EU Competition Commission over the proposed sale of O2 to Three for £10.3bn earlier this year. It had hoped the sale would help reduce its …
What tends to matter is the ratio of debt to revenue aka "leverage". Though, thanks to central bank intervention even this doesn't seem to matter any more. Whether it's O2, Dell, Softbank, Japan or the good ole USA, seems people can't get enough debt.
I mean, after all, what could possibly go wrong?
That's a very good point!
Although I can see 2 snags.
The first being that this could only be put forward once we have eventually left the EU and given that this would be 2 years from whenever our government triggers article 50 (and there is still no sign of this yet). The question is can Telefonica hang on for another 3 years?
The second point is that if we reached the point that Hutchinson Whampoa were no longer being blocked by the EU (and assuming that they were still interested after being jerked around for 5 years) then one obstacle still remains which is that without EU blocking the deal I am sure that BT - sorry I mean OFCOM (but same difference) would surely step in and scupper the deal.
To be fair, although the veto was ultimately given by the EU, it was a political decision driven by Ofcom and the UK competition authority who made it clear they didn't want the deal to happen and made it clear with very public letters in the media. If they had said 'Yes, we want it' and the EU had said 'no' then it would have been much more sticky.
So don't blame the EU here who have been the monkey, blame the UK authorities who pushed the EU into a corner on it, yet let the considerably more dangerous BT/EE deal fly through unchecked.
Except you missed the bit about the existing name being toxic, seeing as how it's associated with the soon-to-be-ex parent organisation. So you need a completely new, whalesong-inspired corporate nothing-word rebrand (helpfully, that would fit with Sean Bean routinely getting killed off in whatever thing he's involved with :p).
"Telefónica will also list its infrastructure business Telxius, which owns mobile masts and fibre-optic cables, on the stock market next year. However, the company intends to maintain a controlling stake."
These partial flotations of a minority stake seem to end in tears. Does anyone remember FT floating a minority stake in their Orange mobile business in the early naughties to force the markets to attach what they thought was a more accurate higher value to the business?
They may get a one off cash injection from selling the minority stake but it also means they can't access the cash flows as "profit" without paying tax on it and spend much more buying out the minority a few years later (as FT did with that Orange minority stake). There's nothing in it for the minority share holders either as they will never see their shares attain a premium in the price as a hostile acquisition simply isn't possible .
If they need a short term cash infusion from a large fixed asset they'd be better placed to securitise a bunch of debt on it (I am not an accountant).
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