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According to media report the struggling telecom giant, Telefonica SA (TEF - Analyst Report) is considering the sale or merger of its Irish subsidiary, O2 Ireland and has received several offers. The divesture is part of the company’s attempt to reduce its enormous debt burden.

To revive its financial health, Telefonica has been disposing off its non-core assets for quite some time now. The Spanish giant could obtain as much as $907 million (€700 million) from the sale of O2 Ireland, which is one of its non-core assets.

The second-largest mobile network in Ireland has received expression of interest from several companies including Hutchinson Whampoa Limited, which already owns the ‘Three’ mobile business in the country. However, Hong Kong-based Hutchinson could face regulatory hurdles as acquiring O2 Ireland will create a monopolistic situation within the Irish market.

Telefonica has one of the highest debt burdens within the industry and had an outstanding debt of approximately $68.43 billion at the end of the first quarter of 2013.Telefonica wants to reduce its debt by approximately $6.4 billion (€5 billion) by the end of 2013.

Recently, Telefonica reported mixed financial results in the first quarter of 2013, where the company’s earnings beat the Zacks Consensus Estimate, while the top line failed to beat the same. Within Europe, macroeconomic crisis and intense competition from the likes of France Telecom’s Orange mobile brand and Vodafone Group Plc. (VOD - Analyst Report) is affecting Telefonica.

The telecom behemoth has stopped paying dividends and is planning a widespread restructuring to considerably reduce its leverage in an attempt to weather the difficult situation. The company raised $1.93 billion (€1.45 billion) by listing its German unit, Telefonica Deutschland, and has also sold its small stake in China Unicom Limited (CHU - Analyst Report) for $1.47 billion (€1.13 billion).

Recently, the Madrid-based company sold a 40% stake in its Central American operations for $500 million (€ 389 million) and is also considering the sale of its Czech Republic operations. We believe that offloading its non-core assets will not only fulfil plans to reduce its mounting debt burden but will also boost its bottom line in the coming years.  

Currently, Telefonica carries a Zacks Rank #3 (Hold).

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