Telefónica launches a takeover bid to control 100% of its German subsidiary for 1,970 million euros

Telefónica has launched a voluntary takeover bid (takeover bid) for 28.19% of the share capital of its German subsidiary Telefónica Deutschland, as reported this Tuesday to the National Securities Market Commission (CNMV). The Spanish company will offer 2.35 euros in cash for each share, which represents a premium of approximately 37.6% over the closing price on the Telefónica Deutschland Stock Exchange this Monday. The offer applies to a maximum of 838,452,647 shares, and will involve a disbursement of approximately 1,970 million euros.

The announcement of the takeover comes one day after Telefónica’s Investor Day and after the blow that its German subsidiary suffered from the loss, in August of this year, of a wholesale contract with the German virtual mobile operator 1&1, which will now offer its services from mid-2024 through the Vodafone network. After it was revealed that it was running out of the contract, key to its business, the subsidiary sank almost 18% in the stock market in one session, and had a contagion effect on the parent company’s shares, which sank another 7%.

Coinciding with the announcement of the operation, Telefónica Deutschland published its quarterly results this Tuesday. From January to September, the German subsidiary of the operator earned 125 million euros, 18% more, and increased its turnover by 5%, to 6,323 million. In the third quarter, the company added more than 400,000 new customers. According to the Fitch rating agency, the loss of the contract last summer will have an impact of 500 million on the company’s gross operating result.

The reaction of the markets to the takeover bid was immediate: the shares of the parent company, which is listed in Spain, fell almost 3% and closed the trading day with a decline of 0.59%. The German subsidiary, however, has soared by almost 40% and, at the close of the Frankfurt Stock Exchange, it has appreciated by 37.86%. This advance, slightly higher than the premium offered by Telefónica to investors, reflects that the markets trust that the operation will finally go ahead. All in all, and despite this Tuesday’s rise, the subsidiary’s shares show a depreciation of more than 24% since their annual maximum in May, when it distributed dividends among its shareholders.

With the takeover bid, the telecommunications company will control 100% of its German subsidiary, of which it currently owns, either directly or indirectly, 71.81%. The Spanish operator launches the offer through another of its subsidiaries and indicates in its statement that it has the necessary funds to pay for the entire operation. The company points out that its intention is to increase the contribution of its subsidiary “to the consolidated profit and the cash flows attributable to Telefónica shareholders.” That is, supporting the dividend that the operator pays to the owners of its shares.

Telefónica, whose valuation has just been cut by Barclays, faces an Investor Day this Wednesday where there will be no shortage of topics to address: in addition to presenting its results and its new strategic plan, the company’s directors will have to give details about the takeover bid, and deal with the new Saudi presence in its shareholding and the possible return of the State to its board of directors. With investors such as BlackRock, the largest asset manager in the world, reinforcing its downward bet on Telefónica, the company led by José María Álvarez-Pallete has the challenge of convincing of the viability of its business.

In September, Saudi Telecom Company (STC), the Saudi state operator, announced that it had acquired 4.9% of the strategic Spanish company and that it owned, through other financial instruments, rights to another 5%. The Government, which was caught by surprise by the Saudi irruption, indicated that it was going to apply “all the necessary mechanisms” to defend “the strategic interests of Spain.” Last week, the State Society of Industrial Participations (SEPI) confirmed to the CNMV that it was studying an entry into the shareholding of the Spanish operator.

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