Telefónica pushes for top valuation on O2 Germany IPO

Telefónica is looking to sell shares in its O2 Germany subsidiary significantly above the industry average, according to multiple reports.

Telefónica, which plans a series of investor meetings starting this month, wants to gauge demand for O2 Germany shares at a preliminary valuation of 6.5 to 7 times estimated 2013 EBITDA, according to Bloomberg, citing unnamed sources. A report in Financial Times Deutschland, also citing unnamed sources, said that Telefónica wants sell shares in its O2 Germany in an initial public offering at a price higher than the industry average, and also cited that valuation.

This valuation compares with an average enterprise value for similar European telcos of 5.8 times 2013 EBITDA, and 5.4 times for Telefónica, notes data compiled by Bloomberg.

"I don't see why I should pay to please Telefónica management by paying more than the shares are worth," Andrea Puccini, a fund manager with Fideuram Asset Management in Dublin, told Bloomberg.

Puccini said that Telefónica will likely sell additional shares in the future after the IPO, potentially weighing on the stock, but noted that investors could value O2 Germany higher if they think there is the possibility for a merger with KPN's E-Plus unit and the resulting savings.

While the company has yet to reveal details of the IPO, FT Deutschland said it could happen later this month. Telefónica may offer to sell 20 per cent of its German subsidiary for €1.5 billion, valuing the unit at €7.5 billion, sources told Bloomberg.

Telefónica is being compelled to push forward with the IPO in an effort to preserve its investment-grade credit rating from Moody, after the recent downgrade by Standard and Poor's, according to Zacks Equity Research.

Telefónica is coming under increasing pressure in its domestic Spanish market, and is further threatened by increasing churn rates and declining revenue due to the ongoing reduction in termination charges.

For more:
- see this Bloomberg article
- see this Nasdaq article
- see this Financial Times Deutschland article (translated via Google Translate)  

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