Telefica of Spain announced on March 29 that it had completed negotiations to buy back the 7.5% of shares in its wireless arm, Telefica Miles, that it does not already own. The value of the deal is put at x3.6 billion ($4.2 billion).
The transaction, first announced two weeks earlier, is to be financed via an increase in the company's share capital and will be based on a 4:5 swap of Telefica's shares for the outstanding stock of its mobile unit. Furthermore, Telefica is consolidating the shares in Miles currently held by TISA, its international business unit, within the parent company.
Citing market dynamics that it described as 'challenging,' Telefica said 'the merger will improve Telefica's current positioning and enhance its ability to extract maximum value from its unique business platform, allow it to exploit better the growth from providing innovative information, communications and entertainment services to its customers and provide a more flexible group structure from which to address future customer needs for converged services.'
The move follows the completion in January of Telefica's audacious x30 billion takeover of 02, which operates wireless services in the UK, Ireland and Germany. By consolidating its stake in Miles, Telefica has added to speculation that it is poised to re-brand, in part or in full, its mobile operations as O2.
Strategically, the deal is an obvious response to the demands of fixed-mobile convergence but it also has a strong Latin American flavor. The company has mobile operations in 13 Central and South American countries, with more than 70 million customers.
Spain's national carrier is just the latest of the European heavyweights to reverse direction on the issue of how to manage its fixed and mobile arms. France Telecom did the same with Orange in 2003 and Telecom Italia with TIM, its wireless division, last year. Deutsche Telekom would likely have been doing something similar, except for the fact that it never managed to pull off a planned IPO of its T-Mobile due to the market downturn after 2001.
The only major European carrier excluded from the wireless buyback exercise is BT. It was forced to spin off 100% of its wireless arm in 2002. The resulting standalone enterprise, 02, is as we have seen now the property of Telefica. That makes it the exception that proves the rule that disintegrated telcos are responding to the challenges of convergence by re-integrating themselves.
