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Predrag V

Telefonica telecom

Question

Why did shares of Telefonica jump today? Is there any particular reason for it or simply due to technical reasons?


 

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Hi Predrag,

Thanks for the question. 

Yes, indeed, shares of Telefonica surged yesterday after the European Union’s General Court unblocked the sale of the UK’s O2 to Three UK. The agreed deal was blocked by the EU’s competition body in 2016, preventing the Three UK (owned by Hutchison Holdings) to buy Telefonica’s O2 for $12.6 billion.

“The commission takes note of the General Court’s decision annulling the commission’s decision of 11 May 2016 prohibiting Hutchison’s proposed acquisition of O2 UK. The commission will carefully analyse the judgment,” the EU Commission statement reads. 

Hutchinson argued that the competition enforcers made  “several errors of law” and could not prove that the expected merger will hurt competition activity.

“The commission’s approach has unfortunately acted as a brake on, or in a number of cases prevented, network improvements and consumer benefits that can be achieved from mobile mergers.

Legal practitioners are seeing this decision from the Luxembourg-based General Court as a very important milestone and a “landmark” judgment.  

“This landmark judgment represents a significant setback for Commissioner Vestager. Challenging four-to-three consolidation in the telecommunications sector has been a central feature of merger enforcement under her watch and the judgment will be studied closely to see the extent to which it may allow further consolidation in the sector,” Nicholas Levy, a Brussels-based partner at law firm Cleary Gottlieb, wrote.

As a result, Telefonica stock price surged more than 4% on the news. The expected sale will provide the Spain-based telecom giant with funds to keep expanding its core business. The price is now expected to go to the 5.00 mark, where a key resistance is located. In March, shares of Telefonica printed the record low at 3.53 on the coronavirus-related market selloff.

Earlier this month, Telefonica began consultations with Virgin Media on a possible merger with 02.


 

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Hi Predrag, thanks for asking the question.

Shares of Telefonica SA (EBR: TFA) reached another high this month after Telefonica Deutschland agreed to sell about 10,100 cell towers to global infrastructure company Telxius for roughly $1.7 billion. 

Major stockholders of Telxius include Telefonica Group (50,01%), private equity group KKR (40%) as well as personal investment company Pontegadea (9.99%), a daughter company of Amancio Ortega. The deal will help Telxius will increase the number of phone masts to 32,800 towers, 80% of which are based in Europe. 

Concerning Telefonica, the deal will cut the company’s net debt by 500 million euros between 2020 and 2021. A few weeks ago, Markus Haas, the Chief Executive of Telefonica Deutschland said there’s a high demand for the company’s towers and the selling price could account for sales.

According to the estimates, Telefonica now has roughly 40,000 phone masts in possession. The cell towers have been a very popular investment lately as they generate high revenues. 

Last month, the European General Court lifted the block on the sale of the England-based O2 (also a daughter company of Telefonica) to Three UK for $12.6 billion.

After that, shares of Telefonica advanced around 20% over the next several days to reach the 3-month high above 5.00. The recent events allowed investors to buy the stock above 4.80, which represents a significant horizontal resistance. Their goal is to reinforce gains by staying above the horizontal resistance and prepare to go for the next target – the 200-DMA at 5.80.

The recent launch of Telefonica Infra was part of the new Telefonica reorganization plan announced on November 27, 2019.

Hope I’ve helped.
 

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Hello Predrag, thanks for joining us here.

Overall, Telefonica SA hasn’t had a great year since its shares dropped over 34% this year.

The company is looking monetize its infrastructure assets after failing to increase revenue over recent years. According to one of the sources, the company is also considering a merger with a rival tower company. 

The sources, who requested to stay anonymous, also said that Telefonica has been considering an IPO of Telxius next year. The Madrid-based company tried to list Telxius 2016 but abandoned the plan due to low valuations.
 

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