Telefonica offloads stake in four LatAm units

Spanish operator group Telefonica has sold 40 per cent of its assets in four Central American markets to family-owned Latin American business group CMI for $500m. Telefonica’s operations in El Salvador, Guatemala, Nicaragua, and Panama will be merged into a new joint venture with CMI. The transaction values the businesses at 6.5 times their 2012 EBITDA, according to the group.

The move may come as a surprise to many given that in November 2012, Telefónica saw its revenue from Latin America overtake the revenue generated in Europe for the first time in the firm’s history. Telefónica said the move is part of its “policy of proactive management of its asset portfolio” and will “increase the company’s financial flexibility”. According to research firm Ovum, Telefonica has a higher debt burden compared to its peers, amassed partly in trying to build the Latin American footprint.

“Telefonica is fixated on reducing its debt at the moment and has been for the past couple of years,” commented Jeremy Green principal analyst in Ovum’s telco strategy practice. “This is why it sold off O2 UK’s fixed line business and other business units.”

Central America is politically and economically a stable region, by Telefonica’s own admission. Its business in Europe on the other hand is not showing such stability, but according to Green, this move is not a sign that Telefonica is giving up on Latin America.

“Telefonica has been streamlining its operations for simplification,” he said. “I’d imagine they’re looking to hang on to the biggest and most important businesses in Latin America and the businesses that take up more mind share than they are worth, Telefonica can afford to sell.”

Green added that Telefonica’s shares are currently valued highly, so it has attracted a lot of money for its assets.

“CMI does everything from fast food, real estate, renewable energy and finance. It has a retail presence and I’m sure is fairly well connected politically. So Telefonica is not selling to a rival that will directly compete with it. It has basically offloaded a portion of a profitable business at a good price.”


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