As part of the divestment process launched by José María Álvarez-Pallete, Telefónica is already finalizing the sale of another business division, in this case the subsidiary submarine cable company. The operation, which was drawn up as part of plans to downsize the company and cut debt, was triggered this week, with a valuation of around 2,000 million euros. The company expects to receive the first non-binding offers in the coming days.
Submarine cable is included within the Telxius subsidiary, so far next to the telephone towers. In fact, the cable’s evaluation and the difficulty that this activity had with telephone towers complicated Telxius’s frustrating IPO in 2016. Finally, the large Spanish telecom company sold 40% of its subsidiary to KKR for 1,275 million and 10% to Pontegadea for 400 million.
Last November, Telefónica decided to separate Telxius’ submarine cable business, hiring Société Générale and Greenhill to set up the operation. In parallel, it launched the sale of its telephone towers, which crystallized in February with an agreement with American Tower to dispose of 30,000 towers in Europe (Spain and Germany) and in Latin America (Brazil, Peru, Chile and Argentina). He was on Telxius for 7,700 million.
The cable segment under the Telxius umbrella includes a network of 65,000 km of high capacity lines. Among them, nearly half of those cables, 31,265 kilometers, are submarine cables, according to unsuccessful IPO booklet Telxius.
This is the last asset of focus for many investors. Telefónica has already given the operation the green light. Banks have already distributed the sales book to potential investors. Stakeholders include infrastructure funds, international pension funds, and sovereign wealth funds.
Communication, however, is still very preliminary. The idea is for Telefónica to officially launch the sale this week, and receive first offers between this week and the next, according to this newspaper’s financial sources. The group must then define its final bids, which will begin its due diligence process and then submit its final bids. The calendar happens to be a winner in the summer.
The first preliminary estimates are around 2,000 million. KKR and Ponteagadea will also be able to make money from the process and definitively complete their investment in Telxius after four years. Once the submarine cable sale is complete, the company will keep the terrestrial cable network and some other assets, but not the phone towers. It will remain within Telefonica Infra.
To support the operation, Telefónica a few weeks ago signed an agreement with Interxion (controlled by Digital Realty) to connect the Dunant cable, the first cable to be deployed between France and the United States in 15 years, with Interxion’s headquarters in Madrid.
It is not the only step Telefónica prepares to reduce its huge debt of 35,228 million at the end of 2020. It is also negotiating to withdraw its investments from its Latin American business. It recently entered CDPQ in its Brazilian fiber subsidiary, as it did with KKR in its fiber in Chile and with Allianz in its fiber in Germany. It has also entrusted KPMG and Morgan Stanley to search for a minority investor for its technology subsidiary, which includes the Internet of Things or AI businesses.
The idea is to replicate the success of some of the operations Telefónica has carried out in the past. One of them, which is fundamental, is the sale in 2019 of Asterion of 11 data centers in Spain, Brazil, the United States, Mexico, Peru, Chile and Argentina for 550 million. Telefónica this year moved 11 more data centers in Spain in exchange for a minority stake in Nabiax, the Asterion company built on these assets. It has also merged its UK subsidiary, O2, with Liberty operator.