Telefonica Said to Squeeze Discounts From Banks in Unit IPO

  • Banks charging less than usual to advise on Telxius listing
  • Telefonica leveraging power as client, lack of Spanish deals

Telefonica SA wrangled fee discounts from banks working on the initial public offering of its infrastructure unit as a dearth of deals in Spain gave it bargaining power over its advisers, people familiar with the matter said.

Telefonica has asked some banks to accept fees that represent a reduction of about 30 percent from what the firms would expect for similar deals, the people said, asking not to be named because the terms are private. In line with industry practice, payments to the companies running the IPO could increase if it does well, the people said.

Banks managing IPOs in Europe, the Middle East and Africa made an average of 2.1 percent of deal size in fees this year, compared with 5.5 percent in the U.S., according to data compiled by Bloomberg. Still, Philips Lighting NV, which raised 750 million euros ($852 million) in the largest IPO in EMEA this year, paid banks on the sale 1.25 percent in fees, the data shows.

Telefonica is working on listing a stake in Telxius, which manages the bulk of the Spanish phone company’s wireless towers and submarine cable network, as soon as July, people familiar with the matter have said. The unit could be valued at 4 billion euros to 5 billion euros in an IPO, the people said.

A consortium of 17 banks, led by Goldman Sachs Group Inc., JPMorgan Chase & Co., Banco Bilbao Vizcaya Argentaria SA and CaixaBank SA has been has formed to work on what is set to become Spain’s largest IPO so far this year, they said. CaixaBank and BBVA are Telefonica’s biggest shareholders.

A spokesman for Telefonica declined to comment. Representatives for Goldman, JPMorgan, BBVA and CaixaBank declined to comment.

Companies that began trading in Spain this year have raised about $1.5 billion, down 84 percent from the same period last year, according to data compiled by Bloomberg. Spain isn’t the only market to see a decline in IPO activity. Elsewhere in Europe volumes were about $11 billion this year, compared with $38 billion in the same period in 2015.

Telefonica was little changed at 9.05 euros in Madrid trading at 12:23 p.m. The shares have declined 12 percent this year.

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