Telefónica will reduce its debt following the $9.4 billion sale of its mobile phone masts to Boston-based American Towers.
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Shares in Telefónica soared almost 10% on Wednesday, after the Spanish telecom company struck a deal to sell its mobile phone masts in Europe and Latin America to U.S.-based telecom infrastructure operator American Tower for $9.4 billion in cash.
The back story. European telecom companies have stepped up the sale of their valuable tower estates in recent years, as they look to cut their debt and raise cash to invest in the costly rollout of 5G networks to keep pace with the surge of data for applications such as fixed wireless and autonomous vehicles.
Read:Momentum in 5G Is Dialing Up in 2021. These Stocks Are Set for the Best Reception.
“Proceeds from tower disposals could increase revenue generation and improve operators’ market positions. This includes a faster and deeper rollout of local access fixed-line fiber networks and acquisitions of network assets to converge fixed and mobile networks,” wrote analysts at credit-ratings firm Fitch in a recent research note that looked at the sector.
Vodafone last year spun out its tower assets, Vantage Towers, and is planning to float the business on the Frankfurt Stock Exchange in the next few months, which analysts have estimated could be valued at around €20 billion.
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Telefónica’s sale of its mobile phone masts business is part of the group’s wider strategy to cut its debt pile by exiting less profitable markets, such as those in Latin America, to focus on its more lucrative core markets.
What’s new. Under the terms of the deal, announced on Wednesday, Boston-based American Towers will buy 30,722 mobile phone masts in Spain, Germany, Brazil, Peru, Chile and Argentina from Telefónica Telxius Telecom division, which is 40% owned by private-equity firm KKR. American Tower will then lease the phone masts back to the Spanish group.
Telefónica said it plans to use the proceeds from the sale of its towers business to reduce its net financial debt by €4.6 billion.
Shares in Telefónica rose 9.75% to €3.95 in midmorning European trading.
Looking ahead. News of Telefónica’s sale was welcomed by investors, who have raised concerns about the Spanish telecom’s debt pile, which stood at more than €37 billion at the end of last year.
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Telefónica Chief Executive José María Álvarez-Pallete said that the deal will allow the company to focus on its “most ambitious objectives.” In May, Telefónica struck a £31 billion deal to merge its U.K. O2 division with Virgin Media, which is owned by John Malone’s Liberty Global and is currently being examined by the U.K.’s competition watchdog.
For American Tower and other buyers of masts, the assets guarantee a steady stream of income from long-term contracts with telecom operators that pay to rent the infrastructure. It also gives the U.S. infrastructure giant a foothold in Europe, where it will compete with Barcelona-based Cellnex.
But it is paying a hefty price for the asset. “This is at the high end of the range of deals we have seen in Europe on both, an initial and run-rate basis and reflects a high level of competition for this asset,” wrote Barclays analyst Mathieu Robilliard in a research note to clients on Wednesday.
