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Is Telefonica Preparing for an IPO of the UK Wireless Unit?

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According to a recent report by The Telegraph, Spanish telecom behemoth Telefonica SA (TEF - Free Report) is moving ahead with a proposed IPO (initial public offering) for its U.K. wireless unit O2 early next year. Telefonica is likely to maintain a majority stake in O2 even after its IPO. Per The Telegraph’s report, the company has hired Barclays, UBS, Morgan Stanley and a fourth investment bank for this purpose. Marketing agency Finsbury will take care of the public relations part of the proposed IPO.

Notably, last week, Telefonica filed an IPO prospectus for its infrastructure division Telxius, to the Spanish stock market regulator, the Comisión Nacional del Mercado de Valores (CNMV). In May 2016, Bloomberg reports stated that Telefonica is mulling over an IPO for Telxius and O2. In the meantime, the company has been grappling with issues such as the Brexit, Britain’s vote to leave the European Union, which delayed the process.

The Telxius IPO and the proposed IPO of O2 are of utmost importance to Telefonica after the European Union telecom regulator blocked the proposed sale of its O2 unit in the U.K. to 3UK of Hutchison Whampoa. The deal was worth around $14.9 billion.

At present, the UK wireless market is dominated by four large players. Apart from O2, 3UK, and Vodafone Group Plc. (VOD - Free Report) , BT Group Plc. (BT - Free Report) has emerged as a key player in this space after its acquisition of British mobile network operator EE, earlier jointly controlled by Orange SA (ORAN - Free Report) and Deutsche Telekom AG.

Telefonica’s debt currently stands at approximately €52.2 billion (around $58 billion). The company had planned to reduce its debt burden through the divestment of its O2 division. However, the plan fell through as the transaction failed to materialize. According to some industry watchers, Telefonica may now be forced to sell some of its core assets to raise cash and pay-off debt. Otherwise its debt rating may be badly affected. Telefonica currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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