Telefónica Profit Falls Despite Latin American Sales Boost -- 2nd Update
07 November 2015 - 3:24AM
Dow Jones News
By David Román
MADRID-- Telefónica SA said it expects Europe's top antitrust
regulator will approve the planned sale of its O2 U.K. unit,
brushing aside market analysts' concern that the probe may derail
the $14 billion deal.
Speaking on Friday after the Spanish telecommunications firm
reported a third-quarter decline in net profit, Chief Financial
Officer Angel Vilá emphasized that the probe is being conducted by
the European Commission rather than the U.K. market regulator
Ofcom, which has been critical of the deal.
"We expect the deal to close in the second quarter 2016 provided
that the European Union doesn't stop the clock," Mr. Vilá told
analysts in a conference call. "We remain confident and optimistic
in the success of this deal."
The European Commission, the European Union's executive arm, is
looking into whether the sale of O2 to rival CK Hutchison Holdings
Ltd. may potentially lead to higher prices and less choice for U.K.
customers.
The sale would create the largest mobile-network operator in the
U.K. O2 is Britain's second-largest mobile operator, and Hutchison,
controlled by Hong Kong tycoon Li Ka-shing, already owns the
fourth-largest operator, Three U.K.
EU officials, including the bloc's antitrust chief, Margrethe
Vestager, had been warning that mobile-phone mergers in already
concentrated markets risked harming consumers. Scandinavian telecom
operators Telenor ASA and TeliaSonera AB abandoned plans to combine
their Danish operations in September after failing to secure
approval from EU authorities.
For Telefónica, completing the sale of O2 is a fundamental part
of a strategy focused on cutting debt while maintaining a strong
dividend policy that is a top draw for institutional investors such
as pension and investment funds. Telefónica said Friday that its
net debt, which peaked at EUR56.3 billion in 2011, has dropped
slowly and stood at EUR49.7 billion as of Sept. 30.
In a recent note to investors, analysts at Bankinter said that,
if the O2 deal is scrapped, Telefónica may be forced to switch from
a cash dividend to a less appealing scrip dividend, to be paid in
company shares.
The commission has until March 16 of next year to investigate
the proposed acquisition and decide whether to approve it or to ask
the companies for concessions to ease antitrust concerns.
Mr. Vilá said that Hutchison is leading what he called a
"constructive" discussion with the commission, with Telefónica
taking part.
He said Telefónica has considered "several possible
alternatives" to raise funds in case the sale is canceled,
including the sale of other assets like telephony towers.
Spain's economic slump in recent years has prompted Telefónica
to sell some units and focus its expansion on emerging Latin
American economies. That expansion led in the third quarter to a
11% rise in revenue to EUR11.9 billion, the company reported
Friday.
Sales in Spain, the company's largest single market, were up
0.2% to EUR3 billion, the annual growth in a given quarter in seven
years.
But third-quarter net profit was down 2% on the year, to EUR884
million, falling short of an eight-analyst consensus compiled by
FactSet that anticipated EUR1.05 billion in net profit.
The company said its operating margins narrowed in key markets,
a result of heavy investment to expand the business in Latin
America and secure premium clients in Spain and Germany.
Write to David Román at david.roman@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
November 06, 2015 11:09 ET (16:09 GMT)
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