) will sell its Irish subsidiary - O2 Ireland - to Hutchison
Whampoa's 3 Ireland for €780 million ($1 billion). The divesture
is part of the company's attempt to reduce its enormous debt
Per the agreement, Telefonica will receive an additional
deferred payment of €70 million ($90 million) post the fulfilment
of the agreed financial targets. However, Hong Kong-based
Hutchison has to face regulatory hurdles as acquiring O2 Ireland
will create a monopolistic situation within the Irish telecom
O2 is the second-largest mobile phone operator in Ireland.
Nevertheless, in the last couple of years, the company has lost
market share to
Vodafone Group Plc.
), Eircom and Hutchison's 3 mobile brand. Telefonica's O2 Ireland
has received bids from Eircom Group, Hutchison's 3 and
Liberty Global Inc.
The combination of the second and the third-largest telecom
carriers in the Irish market will have an estimated market share
of 37.5%. Post the acquisition, 3 Ireland will have the size and
financial backup to challenge the market leader, Vodafone
Telefonica continues to struggle in Europe as declining mobile
data usage and fierce competition continue to hurt the company's
profitability. Additionally, Telefonica has one of the highest
debt burdens within the industry with outstanding debt of
approximately $68.43 billion at the end of the first quarter of
The transaction is part of Telefonica's policy of disposing
its non-core assets to reduce its huge debt burden. Telefonica
wants to reduce its debt by approximately $6.4 billion (€5
billion) by the end of 2013.
The telecom behemoth has stopped paying dividends and is
planning a widespread restructuring to considerably reduce its
leverage in an attempt to weather the difficult situation. The
company raised $1.93 billion (€1.45 billion) by listing its
German unit, Telefonica Deutschland, and has also sold its small
China Unicom Limited
) for $1.47 billion (€1.13 billion).
Recently, the Madrid-based company sold a 40% stake in its
Central American operations for $500 million (€ 389 million) and
is also considering the sale of its Czech Republic operations. We
believe that offloading its non-core assets will not only reduce
its mounting debt burden but will also boost its bottom line in
the coming years.
Currently, Telefonica carries a Zacks Rank #3 (Hold).
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