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Telefónica Slims Down (a Bit) With M&A Move

Ray Le Maistre
1/25/2019

Telefónica has, as expected, offloaded two non-strategic operations in Central America, striking a deal to sell its operations in Guatemala and El Salvador to América Móvil for US$648 million.

The impact on its large (but shrinking) balance sheet will be limited, though.

The Spanish giant's regional subsidiary, Telefonica Centroamérica Inversiones, in which Telefónica owns a 60% stake and local investment firm Corporación Multi Inversiones the remaining 40%, has struck a deal to sell all of Telefónica Guatemala and 99.3% of Telefónica El Salvador to América Móvil S.A. de C.V. , the regional communications services giant owned by Carlos Slim, one of the world's richest individuals.

Telefónica Guatemala is valued at €293 million ($333 million) and Telefónica El Salvador at €277 million ($315 million). Telefónica says this is equal to almost ten times the estimated 2018 EBITDA of the two operations combined. The sale of the Guatemalan unit has been completed, while the El Salvador sale still requires some approvals.

América Móvil (better known by its Claro brand) is already the number two mobile player in Guatemala, behind Tigo (the brand of Millicom), and this move will strengthen its position, adding more than 3 million customers and taking its market share from about 28% to 44%.

In El Salvador, the acquisition will strengthen Claro's leadership, adding more than 2 million customers and taking its market share to 59%, leaving the number two player, Tigo, way behind.

In total, América Móvil has 280 million mobile users across its group markets (from the US and Mexico to Argentina in the Americas and across Central and Eastern Europe though its stake in Telekom Austria) and 363 million access lines in total. It says the addition of Telefónica's units will "strengthen its position in both countries to continue providing integrated telecom services and position itself to provide next generation services, including 5G."

But Telefónica says it will register a capital gain of only €120 million ($136 million) -- and that's before tax.

The operator says the move is part of its efforts to fine tune its portfolio, reduce its debts and strengthen its balance sheet but this deal will have limited impact on its numbers: Telefónica's debt pile stood at €42.6 billion ($48.3 billion) at the end of the third quarter of 2018, so this asset sale will not move the needle too much.

The operator's share price was largely unchanged at €7.71 on the Madrid exchange.

Telefónica's main operational focus is on key markets in Europe and Latin America, where it has been preparing for 5G with investments in its fiber transport architecture, telco cloud platforms and digital business support systems as well as a next-generation radio access network. (See Telefónica UK Gets a Tighter Grip on Automation , Telefónica Deutschland Plots 5G Challenge to Broadband Incumbents, Eurobites: Nokia, Telefónica Put 5G to Work on the Assembly Line and Telefónica Edges Closer to a Distributed Telco Cloud.)

It has, in total, 356 million customers, with operations in Europe (Spain, Germany, UK), Latin America (Brazil, Argentina, Chile, Uruguay, Peru, Ecuador, Colombia and Venezuela), Mexico, and (still) in Central America (Panama, Nicaragua and Costa Rica).

— Ray Le Maistre, Editor-in-Chief, Light Reading

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