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Last updated: February 28, 2006 10:23 pm

Telefónica looks to sell stake in TPI unit for €1.9bn

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Telefónica, the Spanish telecoms group, on Tuesday said it was considering selling its phone-directory unit TPI after its £17.7bn ($26bn) takeover of O2, the UK mobile operator.

TPI shares surged more than 6 per cent after Telefónica said in a regulatory filing that it was “exploring strategic alternatives regarding its stake in TPI, including a total or partial sale”.

Telefónica’s own shares also strengthened early on after the announcement that the telecom group would be contacting possible buyers, but closed level.

Telefónica owns 60 per cent of TPI, a stake worth about €1.9bn at current market prices that value TPI as a whole at around €3bn. TPI’s profit in 2005 rose 10 per cent to €127m, on sales of €654m.

Telefónica’s credit ratings have been cut following its successful offers for O2, which will double the Spanish company’s debt load to about €50bn.

In the last year, it has also brought BellSouth mobile units in Latin America for $5.85bn and spent €3.6bn on a 70 per cent stake in Cesky Telecom as it seeks growth.

Standard & Poor’s lowered Telefónica’s credit rating to BBB+ from A- last month, in line with Moody’s Baa1 grade. The rating is the third lowest investment grade and the lowest ever for Telefónica.

The sale of TPI is expected to attract private equity buyers keen on businesses with steady cash flows, as they are able to securitise this income with bonds.

The telephone directories sector has already been a very active line for investors in Europe. Only four such businesses now remain in the hands of telecom incumbents.

Last year, Macquarie Capital Alliance of Australia paid €1.8bn to acquire Yellow Brick Road, the pan-European telephone directories business, from 3i and Veronis Suhler Stevenson, the private equity groups.

This followed VNU’s €2.1bn sale of its telephone directories business to Apax Partners and Cinven and the €5.6bn buyout of Seat Pagine Gialle, the Italian directories business by a consortium of UK private equity funds.

But perhaps one of the most successful transactions in this sector to date was the acquisition of Yell by Apax and Hicks, Muse, Tate and Furst. The buyout duo floated the directories business in 2003 and have seen their shares rise by 83.6 per cent since then.

Other non-core Telefónica stakes include its holding in recently listed TV programme maker Endemol.

Meanwhile, Telefónica Moviles, the group’s mobile telephony subsidiary, saw a 13.4 per cent increase in net profit to €1.9bn in 2005, on a turnover of €16.5bn.

Turnover increased 40.5 per cent last year, partly as a result of the integration of 10 Latin American mobile phone companies bought from Bellsouth.

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