PPF Group to pay 2.5 billion euros for Telefonica Czech Republic: report

Investment firm PPF Group is on the verge of agreeing a €2.5 billion ($3.38 billion) deal to acquire a controlling stake in Telefonica’s Czech business, reports the Financial Times.

According to sources cited by the UK newspaper, the companies are set to reach an agreement over the next few days.

Telefonica (Madrid, Spain) has been reported to be looking for a buyer of its 66% stake in Telefonica Czech Republic ever since regulatory authorities decided to reserve spectrum in a forthcoming frequency auction for a new entrant to the telecoms sector.

The operator believes that such an engineering of the auction rules amounts to the provision of illegal state aid.

Clearly, the rules will limit the amount of spectrum available to the incumbents, driving up costs and making the rollout of 4G services a more difficult process.

Owned by Czech billionaire Petr Kellner, PPF Group (Amsterdam, Netherlands) had originally expressed interest in bidding for spectrum during the upcoming auction, but it backed out after regulators said frequency winners would not be allowed to merge with other license recipients for at least 15 years.

Clearly, a takeover of Telefonica Czech Republic would provide it with an alternative route into the country’s mobile market.

According to the Financial Times, following the deal with Telefonica, PPF Group is expected to launch an offer for the 31% of Telefonica Czech Republic listed on the Czech stock exchange.

A sale by Telefonica would help the Spanish operator to reduce debt, in line with strategic targets, and follow the sale of assets in central America and Ireland earlier this year.

Although Telefonica’s Czech business also includes the fixed-line business of the former state-owned monopoly, the company has struggled in recent quarters amid tough economic conditions and fierce competition from T-Mobile and Vodafone (Newbury, UK), the market’s other mobile network operators.

T-Mobile has also expressed unhappiness with regulatory plans to reserve 4G spectrum for a new entrant, with parent company Deutsche Telekom (Bonn, Germany) also reported to be considering its future in the country.