Telefonica in Talks to Sell Czech Stake to Kellner’s PPF

Billionaire Petr Kellner’s PPF Group NV is in talks to acquire the Czech Republic’s biggest telephone company, potentially putting an end to eight years of control by Spanish carrier Telefonica SA.

Telefonica is exploring strategic options for its 69 percent stake in Telefonica Czech Republic AS, the Madrid-based company said today. PPF is currently the only bidder for the holding, which has a market value of $3.9 billion, said two people familiar with the matter, asking not to be identified because the discussions are confidential. Radek Stavel, a PPF spokesman, declined to comment.

A takeover by 49-year-old Kellner, who has a net worth of $11.5 billion according to the Bloomberg Billionaires Index, would put the former phone monopoly back in Czech hands for the first time since 2005. PPF, one of eastern Europe’s largest investment companies, owns stakes in over a dozen businesses including electronics retailer Eldorado, gold and silver miner Polymetal International Plc and finance company Home Credit Group.

“For a foreign investor, the Czech market may not be that attractive now as an auction that may bring a new entrant has started and there’s a prospect that the new government after elections may raise corporate taxes,” said Josef Nemy, an analyst at Komercni Banka AS who recommends selling Telefonica Czech shares. “PPF may have a different view on what will happen.”

Spectrum Auction

Last month, Telefonica, Deutsche Telekom AG and Vodafone Group Plc’s Czech divisions registered to take part in a mobile-frequency auction aimed at boosting services and competition. Revolution Mobile AS, a former PPF unit, also applied. PPF said it wouldn’t take part because the tender bans any new entrant from merging with another participant for 15 years.

Telefonica Czech rose 2.9 percent to 332.5 koruna at 3:44 p.m. in Prague, adding to yesterday’s 6.6 percent gain after Bloomberg News reported that Telefonica is preparing a sale of the asset. Telefonica, with operations in Spain, Germany, the U.K. and Latin America, climbed 0.5 percent to 12.55 euros on the Madrid exchange.

An agreement with PPF could be announced by early next month, said two people familiar with the matter. Goldman Sachs Group Inc. and Societe Generale SA are working with Telefonica, people familiar with the matter have said. In its statement today, Telefonica described its contact with PPF as “conversations” that may not necessarily lead to a takeover.

‘Not Overpaying’

Deutsche Telekom and Vodafone Group would be unlikely to win regulatory approval for a takeover of Telefonica Czech, said Andres Bolumburu, a Madrid-based analyst at Banco de Sabadell.

Bolumburu estimates the stake could be sold for an enterprise value of 3 billion euros ($4.1 billion), which includes debt, based on a multiple of six times earnings before interest, taxes, depreciation and amortization.

“PPF is famous for not overpaying for assets,” Erste Group Bank AG analyst Vera Sutedja wrote in a note, adding that the current share price implies a 38 percent premium to peers based on Ebitda multiples.

Telefonica entered the Czech Republic in 2005, buying a controlling stake in Cesky Telecom AS from the government for about $3.6 billion. Telefonica Czech’s second-quarter operating income before depreciation and amortization fell 8.9 percent to 186 million euros as revenue declined 7.8 percent to 465 million euros.

Irish Sale

At the end of June, the division had 5.1 million wireless customers and 1.4 million fixed lines in the Czech Republic. It had 1.4 million mobile-phone users in Slovakia. The Czech business was internally identified as a non-core asset to be sold, people familiar with the matter said earlier this year.

A sale of the division would generate proceeds for Telefonica to pare its net debt of about 48.6 billion euros. In recent months, Telefonica agreed to sell its Irish business to Hong Kong billionaire Li Ka-shing. On the other hand, it also struck deals to acquire control of Royal KPN NV’s German business in an 8.55 billion-euro transaction, and to gradually increase its holding in the company that owns 22.4 percent of Telecom Italia SpA.

Kellner, the richest man in the Czech Republic, is a majority owner of closely held PPF. The group had assets valued at 21.5 billion euros at the end of 2012, according to its website.

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