AT&T Still Searching For Cheap European Acquisition
US telecoms operator, AT&T has reportedly made a bid for Telefónica, which has been rejected by the Spanish government. Telefónica denies that a bid has been submitted, but the company's share price rose the most in three months on the Madrid IBEX 35 index by as much as 3.9% before paring back gains. BMI believes this fits in with AT&T's long-term goal to move into Europe, and we expect the company to be linked with further acquisitions following this rejection. Although, valuations for European companies may be attractive, we caution that they are not out of the woods yet.
The bid was rumoured to be for EUR70bn (US$93bn) and involved AT&T taking on more than EUR52bn of Telefónica's debt. The bid was believed to have been rejected by the Spanish government, as the company remains an important and strategic asset. Telefónica is one of Europe's largest telecoms companies in terms of revenue and subscribers and, although the Spanish government's stake was privatised in 1997, the potential sale of the company would be damaging to its national strategy.
AT&T's rumoured bid for Telefónica fits in with its strategy to expand its operations into Europe, leveraging its experience in the mobile data market to drive revenues. The global recession has created a difficult economic environment in Europe and particularly Spain, where consumers have cut back on spending and switched to plans offered by price disrupters such as Yoigo. Telefónica lost more than 3mn customers from its Spanish unit in 2012, with that trend continuing into Q113. In the twelve months ending March 2013, revenue from its European business units was down 11.7%, from EUR7.556bn to EUR6.675bn. Its Latin America business accounts for more revenue than its European counterpart. It has also been forced to divest itself of various assets to reduce its huge debt burden, such as its Central America division and German fixed line operations. In mid-2012, the company announced it would suspend dividend payments to its shareholders.
|US Companies At A Higher Premium|
|US Index Share Price - AT&T (LHS) & Telefónica (RHS), US$|