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Telefonica sells El Salvador business…again

Telefonica has brokered a deal to sell its operations in El Salvador just over a year after a previous attempt to offload the business collapsed.

And this time around, the purchase price is less than half the figure it agreed last time around.

The operator plans to sell Telefonica El Salvador to General International Telecom, a UK registered private limited company, for US$144 million. To be strictly accurate, the transaction is between  Telefonica Centroamérica Inversiones – a 60:40 joint venture between Telefonica and Corporación Multi Inversiones – and covers a 99.3% stake in Telefonica El Salvador.

That 99.3% stake was originally slated to pass to America Movil, which inked a $315 million deal to acquire it in January 2019 as part of a broader, more expensive, transaction that saw it pick up Telefonica’s Guatemalan operations. However, regulators intervened, imposing conditions on the deal in a bid to protect market competition, including rules on spectrum usage and America Movil being required to retain Telefonica’s marketing strategies for a seven-year period. Those and other conditions proved too onerous for America Movil and the companies called off the deal last September.

It is worth noting that at the time there was some confusion over whether America Movil had backed out of the whole deal or merely a portion of it. However, 13 months on it seems that the asset now being sold to General International Telecom is the same as that America Movil walked away from.

As a result, it’s also worth highlighting the price difference. We can’t really comment on how well, or otherwise, the business has performed in recent months, since El Salvador is classed as an asset held for sale by Telefonica. That aside, it seems likely that the business was worth more to America Movil, which already has fixed and mobile operations in El Salvador and could therefore use it to build some scale, that it would be to an investment buyer. And with regulators already having made their position clear, Telefonica didn’t have many choices left.

The purchase represents a multiple of around seven times the unit’s 2020 OIBDA, Telefonica pointed out when it announced the deal, adding that the transactions is part of its group “asset portfolio management policy based on a strategy of value creation, improving return on capital.”

We already knew that. The Spanish incumbent has been selling assets all over the place in a bid to pay down debt, and has done so pretty successfully; it shaved €9 billion from debt in Q2 alone mainly through the sale of its towers assets and UK merger with Liberty Global.

The deal also effectively marks Telefonica’s exit from Central America. The telco completed the sale of its operations in Costa Rica to Liberty Latin America in August, having already offloaded businesses in Panama and Nicaragua to Millicom, as well as the aforementioned Guatemala sale. If it gets the regulatory nod to transfer its El Salvador operations to General International Telecom – and there’s no reason it shouldn’t, this time – it’s outta there.


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