Telefónica in talks with PPF to possibly sell Czech unit

Telefónica confirmed it is "considering strategic alternatives" for its 69 per cent stake in Telefónica Czech Republic, but reports suggest the potential options are limited and a sale of the Czech operator would generate little premium for the Spanish parent, which is seeking ways to reduce its debt.

In a statement, Telefónica said it is in negotiations with investor group PPF, but unnamed sources told Bloomberg that the group owned by billionaire Petr Kellner is the only bidder so far and would face some challenges to reverse years of falling revenue at the Czech operator, which markets mobile and fixed services under the O2 brand.

"They would be buying a business that is in a good shape but in a difficult market situation as revenue declines and the auction may bring a new challenger to the market," Tomas Mencik, a Cyrrus analyst, told Bloomberg.

Reuters also noted that PPF is currently the most likely buyer of the stake. Andres Bolumburu, an analyst at Banco de Sabadell, told Bloomberg that the stake could be sold for an estimated enterprise value of €3 billion ($4.06 billion), which includes debt, based on a multiple of six times EBITDA.

Other reports have variously estimated the market value of the stake at $3.6 billion and $3.9 billion.

Vera Sutedja, an analyst at Erste Group Bank AG in Austria, wrote in a research note that PPF "is famous for not overpaying for assets," and is unlikely to pay much over the market value.

PPF has so far not commented on the matter, but reports suggest an acquisition of Telefónica Czech Republic could be an alternative route into the mobile market after PPF said it would not participate in the Czech LTE spectrum auction in November.

PPF recently sold its mobile unit, PPF Mobile Services, to its CEO, Tomas Budnik. The subsidiary then changed its name to Revolution Mobile and is now one of two new entrants planning to take part in the spectrum auction, Bloomberg reported. The other newcomer is Tasciane.

The Czech unit has long been seen as a potential sales target for Telefónica, which has already agreed to sell its Irish unit to Hutchison Whampoa as part of efforts to reduce debt to below €47 billion. At the same time, the Spanish operator has agreed to buy KPN's German unit, E-Plus, for €8.55 billion and is also planning to increase its holding in Telco, which owns a 22.4 per cent share of Telecom Italia.

The Madrid-based company reported net debt of €49.8 billion in mid-year results.

For more:
- see this Bloomberg article
- see this Reuters article
- see this separate Bloomberg article
- see this FT article (sub. req.)

Related Articles:
Czech regulator plans second auction attempt in November
Czech Telefónica's O2 sparks price war, drops phone subsidies
Czech regulator revamps spectrum auction, reserves 800 MHz block for newcomer
Private equity firm makes bid for Czech LTE spectrum

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