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Is Telefonica (TEF) Mulling Over an IPO of O2 UK This Year?


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According to a recent Reuters report, Spanish telecom behemoth Telefonica SA (TEF - Analyst Report) is moving ahead with a proposed IPO (initial public offering) for its U.K. wireless unit O2 UK in Dec 2016. However, Reuters also reported that if the market conditions remain volatile, the IPO may be shifted to the first quarter of 2017. Notably, just a few days ago, The Telegraph reported that Telefonica is preparing for the IPO of its U.K. wireless unit early next year.

Telefonica 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. The company is likely to divest a 30% stake of O2 UK through the IPO. Reuters reported that the IPO could value the O2 UK unit around GBP 10 billion (more than $13 billion).

It is worth mentioning that 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.

At present, the U.K. wireless market is dominated by four large players. Apart from O2, 3UK and Vodafone Group Plc. (VOD - Analyst Report) , BT Group Plc. (BT - Snapshot 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 - Analyst 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. Else its debt rating may be badly affected.

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