Kellner’s PPF to Buy Telefonica Czech Stake for $3.4 Billion

Telefonica Czech Republic Headquarters
An O2 logo sits on display beyond electric street lights on the transmission tower at the headquarters of Telefonica Czech Republic AS in Prague. Photographer: Martin Divisek/Bloomberg

Billionaire Petr Kellner’s PPF Group NV agreed to buy a controlling stake in Telefonica Czech Republic AS for about $3.4 billion, returning the country’s biggest phone company to local ownership after eight years.

Kellner’s investment company will buy a 65.9 percent stake from Telefonica SA for 305.6 koruna a share, a 2.1 percent discount to yesterday’s close, it said in a statement today. PPF, financing the deal with a 2.3 billion-euro ($3.1 billion) syndicated loan from banks led by Societe Generale SA, will make a mandatory offer for the remaining shares excluding a 4.9 percent holding that Madrid-based Telefonica plans to retain.

Kellner, the richest man in the Czech Republic with a net worth of $11.2 billion according to the Bloomberg Billionaires Index, is betting he can revive a business hurt by intensifying competition and falling phone bills. For Madrid-based Telefonica, the proceeds will help repay debt.

“They will want to overhaul the business especially on the cost side,” said Tomas Mencik, an analyst at Cyrrus AS in Prague. “They are likely to try to delist the company as they’re not used to operate under many shareholders’ scrutiny.”

Telefonica Czech fell 2.8 percent to close at 303.40 koruna in Prague, extending the stock’s losses this year to 6.2 percent. Bloomberg News was first to report on Oct. 14 that parent Telefonica was working on the disposal. Telefonica slipped 0.9 percent to 12.80 euros on the Madrid exchange.

Data Growth

The deal by Kellner, 49, adds to investments that include retailer Eldorado, gold and silver miner Polymetal International Plc and finance company Home Credit Group. Kellner is betting that increasing video and data traffic will help resurrect growth.

Revenue at Telefonica Czech, which sells services under the O2 brand, has fallen every quarter since early 2009 as competition with Vodafone Group Plc and Deutsche Telekom AG’s local businesses intensified, and regulators are now trying to open the market to a new operator.

The company’s nine-month operating income before depreciation and amortization declined 9.3 percent to 14 billion koruna ($730 million) from a year earlier. The Oibda margin shrank 1.5 percentage points to 39.4 percent.

Enterprise Value

Telefonica Czech has an enterprise value of 5.3 times its projected 2013 Ebitda, according to data compiled by Bloomberg. Two years ago, Polish billionaire Zygmunt Solorz-Zak paid a multiple of 6.4 times for Polkomtel SA in a $5.5 billion transaction.

Goldman Sachs Group Inc. is advising Telefonica on the sale. Other banks providing PPF with financing include Citigroup Inc., Credit Agricole SA and Deutsche Bank AG.

Globally, more than $250 billion in deals for the telecommunications industry have been announced this year, according to data compiled by Bloomberg. Today, Emirates Telecommunications Corp. agreed to buy Vivendi SA’s controlling stake in Maroc Telecom SA for about $5.7 billion.

In September, PPF withdrew from a Czech spectrum sale, citing conditions that preclude it from merging with a rival for 15 years. It sold its PPF Mobile Services AS to the unit’s chief executive officer. The company changed its name to Revolution Mobile and applied to take part in the spectrum auction along with the country’s three existing operators.

Spectrum Sale

The regulator, which expects to start bidding for frequencies on Nov. 11, said earlier that PPF’s takeover of Telefonica shouldn’t affect the auction schedule.

Telefonica Czech said today its mobile-phone customers rose 1 percent from year earlier to 5.1 million at the end of September as fixed-access lines fell 7 percent to 1.4 million. Users in Slovakia rose 14 percent to 1.5 million.

While Telefonica Czech and Telefonica Slovakia will change the names after the deal, they will keep the O2 brand for as many as four years under today’s agreement.

Parent Telefonica, which reports third-quarter earnings on Nov. 8, will book a loss of 56 million euros for the sale. Spain’s biggest carrier paid about $4.7 billion for the Czech stake in two transactions in 2005.

Telefonica is set to receive 2.06 billion euros of cash at closing and 404 million euros in deferred payments over four years. It is also receiving a dividend of 260 million euros from the unit before the sale. The company said the disposal will eventually help it reduce its debt by 2.69 billion euros. Telefonica had net debt of about 48.6 billion euros as of July.

This year, Telefonica also agreed to sell its Irish business to Hong Kong billionaire Li Ka-shing. Spain’s biggest carrier is increasing its indirect holding in Telecom Italia SpA and working on completing the acquisition of a controlling stake in Royal KPN NV’s German business.

In January, PPF agreed to sell its stake in an insurance venture with Assicurazioni Generali SpA SpA for 2.5 billion euros.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE