Telefonica in talks with PPF over sale of Czech subsidiary

Spanish telecoms incumbent Telefonica has acknowledged it is exploring “strategic alternatives” for its Czech subsidiary in a stock exchange filing.

The statement came in response to press speculation that Telefonica (Madrid, Spain) is planning to sell its 70% stake in Telefonica Czech Republic in a deal that could raise as much as $3.6 billion for the debt-burdened Spanish operator, based on the subsidiary’s current market value.

Spanish telecoms incumbent Telefonica has acknowledged it is exploring “strategic alternatives” for its Czech subsidiary in a stock exchange filing.

The statement came in response to press speculation that Telefonica (Madrid, Spain) is planning to sell its 70% stake in Telefonica Czech Republic in a deal that could raise as much as $3.6 billion for the debt-burdened Spanish operator, based on the subsidiary’s current market value.

The strategic alternatives being considered by the company are said to include discussion with PPF Group (Amsterdam, Netherlands), an investment firm controlled by Czech billionaire Petr Kellner.

“Telefonica, the majority stakeholder of Telefonica Czech Republic, has stated that it is considering strategic alternatives regarding its stake in Telefonica Czech Republic, including conversations with investor group PPF, not having certainty with respect to the feasibility of reaching an agreement, nor with respect to the eventual terms and conditions of such agreement,” said the operator.

Telefonica has been looking to divest itself of non-core assets as a means of reducing net debt to less than €47 billion ($63.66 billion) by the end of 2013, from €49.8 billion in June, and the operator has already negotiated the sale of businesses in central America and Ireland this year.

The group also aims to fortify its position in bigger markets and recently agreed an €8.55 billion takeover of E-Plus (Dusseldorf) in Germany.

The merger with Telefonica’s existing German operation would create the country’s biggest operator by subscriber numbers – ahead of Deutsche Telekom (Bonn, Germany) and Vodafone (Newbury, UK) – but has yet to be approved by regulatory authorities.

A decision to sell its controlling stake in Telefonica Czech Republic would come as little surprise given the various challenges the operator faces in the Czech market.

Along with rival Czech operators T-Mobile and Vodafone, Telefonica recently filed an application to participate in a frequency auction scheduled for later this year, but it has expressed its unhappiness with the regulator’s move to reserve airwaves in the coveted 800MHz band for a new entrant.

The auction rules have also come under attack from PPF Group, which had previously expressed interest in bidding for spectrum but decided to skip the process after authorities said new entrants would not be allowed to merge with other frequency winners for at least 15 years.

PPF Group’s response was to sell its mobile subsidiary – which subsequently applied to participate in the auction as Revolution Mobile under different ownership – but it might view a takeover of Telefonica Czech Republic as an alternative route into the country’s mobile market.

T-Mobile majority owner Deutsche Telekom has also reportedly been considering its future in the Czech Republic.

The German incumbent owns 61% of T-Mobile Czech Republic but is said to be similarly worried about the implications of auction rules.

The operator has also expressed concern about its lack of fixed-line infrastructure in certain Eastern European markets, believing it needs both fixed and mobile assets to challenge market leaders.

Fierce competition and difficult economic conditions have taken their toll on both T-Mobile and Telefonica in recent quarters.

For the three months ending June, T-Mobile reported a 9.3% drop in revenue, compared with the same period the year before, to €235 million, while Telefonica’s sales shrank by 8% over the same period to €465 million.