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Telefonica May Look at O2 UK for IPO after Telxuis Setback

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After the Spanish telecom behemoth Telefonica SA (TEF - Free Report) was forced to abandon the initial public offering (IPO) of its infrastructure division Telxius, the company may now be looking forward to an IPO of its U.K. wireless unit, O2 UK. The Telxius IPO failed to generate interest among investors due to its high valuation. Earlier this year, the European Union telecom regulator blocked the proposed sale of its O2 unit in the U.K. to 3UK of Hutchison Whampoa.

Recently, a Reuters report stated that Telefonica is moving ahead with a proposed IPO in Dec 2016, which may be delayed if the underlying macroeconomic conditions remain volatile. Such conditions could hurt valuations, and getting the proper assessment for its O2 unit is of utmost importance for Telefonica, as it looks to cut a massive debt from its balance sheet.

Interestingly, the CEO of O2 UK has stated that the company is very keen on an IPO, and if successfully executed, can achieve valuations around GBP 10.3 billion. O2 is one of the dominant wireless players in the U.K. market along with 3UK, and Vodafone Group Plc. (VOD - Free Report) . Additionally, 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.

The Bottom Line

As the IPOs are primarily aimed at raising funds to cut the massive level of debt in Telefonica’s balance sheet, we believe that the O2 UK provides a better prospect for monetization through the filing. However, volatile macro-economic scenario remains a potential headwind to raise money from an IPO.  

Telefonica currently sports 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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