Telefónica has signed an agreement with American Tower Corporation for the sale of the telecommunications tower division of its subsidiary Telxius for an amount of 7,700 million euros in cash, as reported by the operator to the National Securities Market Commission (CNMV) . The operation implies a capital gain attributable to Telefónica that will amount to approximately 3,500 million euros. Further, the sale will result in a debt reduction equivalent to 4,600 million euros and the leverage ratio (debt over operating profit) of 0.3 times. On the stock market, Telefónica closed with a rise of 9.67%, after hearing the news.
Specifically, the agreement establishes the sale of approximately 30,722 telecommunications tower sites. The operation will be carried out in two separate and independent transactions. On the one hand, the business in Europe will be sold and, on the other hand, that of Latin America. The closing of the two sales will take place once the corresponding regulatory authorizations have been obtained. The telecommunications tower division in Europe comprises sites in Spain and Germany. While that of Latin America includes towers in Brazil, Peru, Chile and Argentina.
Telxius’ tower business generated an operating profit before amortization (OIBDA) of 190 million euros in the last twelve months, according to the company’s estimates. This implies that, adjusting for the impact of the German assets acquired by Telxius in June 2020 (Telxius paid 1,500 million euros for a portfolio of sites and mobile antennas to Telefónica Deutschland), the sale was made at a multiple of 30.5 times of the company’s profits.
The sale agreement includes a commitment to maintain employment by American Tower. In addition, the Telefónica operators will maintain the current tower leasing contracts signed with the companies sold by Telxius subsidiaries, which implies that the operators will continue to provide their services in terms similar to the current ones. So things, American Tower will become Telefónica’s first provider in both Europe and Latin America and will continue to be a partner in strategic projects in Brazil, Argentina and Colombia. The renewal conditions of these future contracts do not include any additional “all or nothing” clause.
The president of Telefónica, José María Álvarez-Pallete, explained: “This is an operation that makes strategic sense within our roadmap. American Tower was our second supplier after Telxius. ” In fact, the company claims that the operation is part of its strategy, which contemplates, among other objectives, “an active portfolio management policy for its businesses and assets, based on the creation of value and accelerating, at the same time, the organic debt reduction ”.
In addition, the operator’s chief executive specified that from now on, after this operation, the operator will continue to focus on its “most ambitious objectives”, which include the integration of O2 with Virgin in the UK, the purchase of Oi’s mobile assets in Brazil and the reduction of debt.
For Bankinter analysts, this operation will make it easier for Telefónica to meet its three objectives of debt reduction, dividend payment and investment. Jesús Sánchez-Quiñones, general director of Renta 4 Banco, for his part, has valued that the market has been asking Telefónica for quite some time to reduce its debt, although interest rates are now at very low levels. According to Sánchez-Quiñones, investors will value the operation very positively, not only because it will reduce its level of leverage, but also because of the commitment it shows to continue lowering its debt.
Meanwhile, for American Tower it is its first major purchase in Europe, which shows his interest in growing up in the Old Continent. Although it still has little exposure to Europe, it poses a threat, according to Bankinter, to Cellnex’s leadership position, which exceeds 103,000 telecommunications towers. Although this figure is more than triple that of American Tower after the acquisition.
Telefónica’s partners in Telxius are KKR and Pontegadea, Amancio Ortega’s family investment instrument.
In recent months, the possibility that Telefónica would try again to go public on Telxius had emerged. It was a plan that he already put into practice in 2016, although without success. The operation had to be suspended due to lack of investment demand.