Spanish Telecom giant
) has divested its call centre arm - Atento to a private equity
firm Bain Capital for approximately Euro 1.3 billion. Offloading
its customer care operations is part of the company's strategy to
raise capital through asset sales.
Per the deal, Telefonica will provide Euro 110 million for
vendor financing which translates into a net asset disposal value
of less than Euro 1 billion. However, Atento will continue to
provide customer service to Telefonica group for the coming nine
Atento, which employs around 152,000 people, is the second
largest customer relationship management company in the world
garnering more than 50% of its revenue from Telefonica. The
company's 2011 revenues stood at Euro $1.8 billion and had a net
debt of Euro 175 million.
Madrid-based Telefonica has been struggling with rising debt
amid Spain's macroeconomic concern. The company has one of the
highest debt burdens within the industry and has an outstanding
debt of Euro 57 billion. Any further sovereign downgrade could
affect Telefonica's rating, which can impact its borrowing cost
as a consequence.
Telefonica has been disposing off its non core assets for
quite some time now. As part of that effort, the company has been
looking to get rid of its customer relationship unit since 2007,
which included an unsuccessful attempt to float Atento last year.
The company also sold a small stake at
China Unicom Limited
) for Euro 1.13 billion in June 2012. Furthermore, the company is
also planning to offload its stakes in Portugal Telecom and
online booking company Rumbo.
The company has also stopped paying dividends and is planning
a widespread restructuring to considerably reduce its leverage.
Telefonica is mulling an IPO option for its German unit and plans
to raise $1.5 billion from the issue. We believe offloading non
core assets along with the capital raising plan will fulfill the
company's plans to raise Euro 7-8 billion every year till 2015 in
order to deal with its mounting debt.
On the flip side, a double dip recession along with a decline
in consumer spending, remain the major concerns for the company.
We believe Spain's ongoing economic concern could seriously limit
Telefonica's ability to reduce its mounting debt.
We maintain our long-term Neutral recommendation on
Telefonica. However, it has a Zacks #4 Rank, implying a
short-term Sell rating on the stock.
CHINA UNICOM (CHU): Free Stock Analysis
TELEFONICA S.A. (TEF): Free Stock Analysis
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