Telefónica looks to sell 49% stake in Tech unit – report

Telefónica is reportedly looking to drum up as much as €500 million (US$591 million) from selling a 49% stake in its Telefónica Tech business.

According to unnamed sources cited by Spanish business daily Cinco Días, the Spanish giant has hired KPMG and Morgan Stanley to manage the divestment.

Figure 1: Cut your cloth: Telefónica Tech is profitable – making it a tempting target, as Telefónica Chairman José María Álvarez-Pallete looks to cut debt.
(Source: Telefónica)

People allegedly in the know say "several large" private equity firms have already expressed an interest. The reported plan is for the sale process to be formally launched after the summer.

No comment, perhaps not surprisingly, was forthcoming from Telefónica.

Tech star?

Telefónica Tech, at first glance, doesn’t appear to be doing too badly. When Telefónica posted its Q1 results, "steady" and "stabilization" were the dominant themes.

The Tech unit, on the other hand, managed to clock up a 25.1% increase in turnover, year-on-year, but that was only to a relatively modest €166 million ($196 million).

Tech comprises two units: Cyber & Cloud Tech, and IoT & Big Data Tech. It is the former, however, which seems to have been the main source of growth during Q1. Telefónica flagged the increasing importance of cybersecurity and cloud as digitalization becomes critical for "businesses of all sizes."

The corporate segment in Spain was given special mention, which, according to Telefónica, delivered an "excellent performance."

The Group is also looking to see Telefónica Tech grow through M&A. News surfaced last week that Telefónica Tech was to acquire Altostratus Cloud Consulting, a Spanish multi-cloud specialist and Google Cloud partner.

According to Telefónica, Altostratus provides cloud services to more than 300 customers, from large corporations to SMEs.

Debt shadow

Any talk of Telefónica divestment is invariably framed as part of the ongoing battle to trim its burdensome debt pile.

As of March 31, Group debt was a shade under €35.8 billion/$43.3 billion (excluding lease liabilities), which was a 6.4% reduction year-on-year (although it actually increased by €568 million/$686 million during the quarter, partly because of shareholder remuneration).

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Through proceeds expected from an agreed merger with Virgin Media in the UK, as well as the sale of Telxius and other assets, Telefónica expects to reduce net financial debt by a further €9 billion ($10.9 billion).

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— Ken Wieland, contributing editor, special to Light Reading