Telefonica is the second largest telecommunications group in the region, by accesses and revenues. Pressured by the weight of its global debt, Telefonica will sell its assets in the nine markets grouped in Hispanic America. After nearly three years of deliberation on ways to reduce exposure, it will move forward on a country-by-country sale.
According to a release published by Dataxis on January 12th, Latin America has almost 90 million mobile customers and 5.4 million broadband accesses. But that mass has been shrinking rapidly. And worse, Telefonica has already verified that the price of its operations also evaporates as the environment deteriorates.
Dataxis estimates that in the best case, Telefonica could obtain around € 13,700 million, to be added to the € 1,660 million it has already obtained from the sale of some of its assets in Central America.
Hispanic America includes Argentina, Chile, Colombia, Ecuador, El Salvador, Mexico, Peru, Uruguay and Venezuela. As a whole, the subregion contributes around 20% of the Group’s total income. Although this volume is equivalent to Brazil, the dispersion of the business in nine countries and the high instability observed in some of them create a lot of volatility.
In 2019, Telefonica sold four markets of its business in Central America to three different buyers. The valuation of the assets ranged between 6.7 and 7.4 times the annual EBITDA of the subsidiaries. An interesting fact: as of Q1 2019, the Costa Rican operation had been arranged with Millicom for € 503 million. After the purchase was cancelled, in Q3 2020 the operation was resumed by Liberty Latin America. But this time the price was € 425 million, 15.5% lower than the initial value. Time is money. In a simulation of 7.4 times EBITDA, in 2019 the value of Latin America would have been € 15,000 million. The same ratio for the estimated EBITDA of 2020, a price of € 13,700 million would be set; 8.7% lower than a year ago. But even that value could be optimistic.
The names of some interested parties for different combinations of specific assets emerged in the press. The most stable, Chile, Colombia, Ecuador and Uruguay have more than one suitor: America Movil (Chile and Uruguay), Entel Chile (Chile), Novator (Chile or Colombia), Liberty Latin America (Colombia, Ecuador and Uruguay) and Telecom Argentina (Uruguay). Argentina is the market with the highest volume of revenue, but it has been punished by the combination of devaluation and inflation. Grupo Olmos and W are mentioned in the press as possible partners in an offer for the assets of Telefónica in Argentina. Grupo Olmos comes from media business and W was the former main stakeholder in Telecom Argentina. The opportunity is to keep the business for a symbolic value and sell it at a better time. In Mexico, Peru and Venezuela there are still no rescheduling of negotiations.
Telefonica has been building an empire for 30 years. Due to ‘cultural affinity’ it prevailed in almost all the privatization processes in the region. Then, in 2004, it consolidated the regional market and expanded its footprint with the purchase of Bellsouth assets. Telefonica achieved a synergistic operation to take advantage of its scales and transferred knowledge between subsidiaries. However, since the last three years it has been in a clear phase of decline. With a parent company drowning in debt, subsidiaries have invested little. That drought finds them in the middle of a process of transformation of the industry. Thus, the exit of Telefonica could create a new order to the sector and more powerful and competitive dynamics.