Ace Spanish telecom company Telefonica S.A. (
TEF ) announced that
its U.K. unit has agreed to dispose its consumer broadband and
telephone-line business. For this, the company signed an agreement
with the country's leading pay television company - British Sky
Broadcasting Group Plc (Sky).FRANCE TELE-ADR (FTE): Free Stock Analysis
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This deal will fetch Telefonica U.K. nearly £180 million or $270
million. There also exists the clause for an additional payment of
a maximum of £20 million or $30 million by Sky. This payment will
come into effect after the successful transfer of customers by
Per the agreement, all broadband and home line telephone customers
of Telefonica U.K., totaling over half a million, will be absorbed
within the Sky network that had 4.2 million broadband users and 4
million fixed-line subscribers, at Dec 31, 2012.
Following the acquisition of consumer broadband, home phone and
line rental businesses that are managed by the O2 and BE brands,
Sky will become the second largest broadband provider in the U.K.
The acquisition - which will be financed from the existing cash
reserves of Sky - is expected to close by the end of Apr 2013,
subject to approvals from regulatory bodies.
Sky management believes that this deal will accelerate the growth
of its broadband and telephony segment. The company looks forward
to rendering a diversified range of top-quality products, great
value along with superior services to a bigger customer base.
On the other hand, the disposition underlines Telefonica's aim to
say goodbye to U.K. broadband operations and concentrate on
enhancing the mobile business unit along with the rollout of 4G
Telefonica - that recently entered into a contract with
Nokia-Siemens Network, a joint venture between Nokia
Corporation ( NOK ) and
Siemens AG ( SI ) - carries a Zacks
Rank #2 (Buy).
We believe Telefonica will be in an advantageous position in the
coming months, owing to its business model restructuring, asset
rationalization, strong financial flexibility and an improving
leverage ratio. However, we remain concerned about weak domestic
operations, intense competition from other European players like
France Telecom S.A. ( FTE ), regulatory
involvement and higher commercial expenses that will likely limit
the upside potetial of the stock.