7th Apr 2006 18:13
Telefonica SA07 April 2006 Press Release 07/04/06 As the Colombian operator's strategic partner, Telefonica will leverage itstrack record and skills in developing traditional telephony and broadband TELEFONICA TAKES CONTROL OF COLOMBIA TELECOM • Acquires at auction 50% of outstanding shares plus one to take control of the Colombian operator • Telefonica will carry out a capital increase of about $ 368 million • The Colombian investment fits with the Company's strategic target of maintaining its leadership throughout the region Madrid, 7 April 2006.- Telefonica to become Colombia Telecom's new strategicpartner in the wake of the auction for a majority stake in the Colombianoperator. As the controlling shareholder in Colombia Telecom, Telefonica willtake over management of the company with ownership of 50% of outstanding sharesplus one. Telefonica, which already has mobile assets in Colombia, will extend itspresence to the fixed telephony business with this investment. Colombia Telecom,the country's leading operator, has 2.6 million customers and an extensive fibreoptic network. The outcome of the auction means that Telefonica can now leverageits skill and experience to successfully develop the fixed line business inColombia - both the traditional and broadband businesses - and to analyse theopportunities to launch cross-technology products and services. From a strategic standpoint, the acquisition of Colombia Telecom fits withTelefonica's leadership profile in the region, where it enjoys a presence inover 13 countries with over 100 million customers. Against this backdrop,Colombia, where the socio-political and economic environment has been improvingsteadily in recent years, represents an important market for Telefonica due toits size and growth profile. Transaction close and price The deal will be formalised on 17 April with the signing of an InvestmentAgreement pursuant to which Telefonica will become Colombia Telecom's strategicpartner, taking over management of the operator with ownership of 50% of thecompany's shares plus one. The rest of the operator's share capital will remainin the government's hands. The government will have a put option on its stake,exercisable in 2022. In terms of deal price and financing, Telefonica has committed to subscribe incash to a Colombian pesos 853.577 million capital increase (approximately US$368 million) at the end of April to be financed from the Company's free cashflow. The agreement also contemplates a modification to the Operating Contract betweenColombia Telecom (in which Telefonica owns a 50% + one share interest and willassume management) and PARAPAT (the consortium that owns the telecommunicationsassets and manages the pension funds of the companies that originally comprisedColombia Telecom). Colombia Telecom, which will have the exclusive right to operate thetelecommunications assets, will pay PARAPAT an annual fee for 17 years ascompensation for the use of these rights. This payment, which is tax deductible,has been set at 350 billion Colombian pesos(1) between 2006 and 2011 and to 480billion Colombian pesos(2) between 2012 and 2022 per annum. The agreementestablishes that the PARAPAT assets will pass definitively to Colombia Telecomin 2022. As part of the deal, Telefonica will receive a fixed management fee fromColombia Telecom equivalent to 7% of EBITDA between 2006 and 2010 and 3% ofEBITDA between 2011 and 2022, so long as EBITDA exceeds 115% of the payment toPARAPAT. From a regulatory standpoint, the deal has already been approved by theColombian Department of Trade and Industry. Other terms of the agreement As part of the investment agreement, Telefonica will have 180 days from thesignature of the deal to close an alliance between Colombia Telecom andTelefonica Moviles Colombia or to inject cash of 150 billion Colombian pesos inColombia Telecom in the form of investment. Other sections of the agreement contemplate the merger between TelefonicaEmpresas Colombia into Colombia Telecom. Depending on the valuation of theresulting company, Telefonica could increase its ownership interest in ColombiaTelecom as a result of this merger. Valuation and value creation There is strong strategic and financial rationale behind the Colombia Telecomacquisition. Strategically, the deal meets the Company's selective investmentand organic growth criteria and reinforces Telefonica's leadership position inthe overall region. In 2005, Colombia Telecom reported revenues of approximately US$900 million andEBITDA of more than US$400 million. Colombia Telecom, market leader, has 2.6million customers in fixed telephony and a market share of 60% in long-distancecalls. In addition, the operator has a 5,800 kilometre long, high capillarity,fibre optic network throughout the country, putting it in an excellent positionfor nationwide expansion. In terms of value creation, Telefonica has identified three key factors. TheCompany plans to optimise management of the traditional business by developingnew products and services adapted to customer requirements and local marketcharacteristics, leveraging its best practices. To this end, it will leveragethe potential opportunities for launching cross-technology customer products andservices. Secondly, Telefonica believes it can optimise and boost the broadbandbusiness, based on its track record as the pioneering provider of this servicein Spain, the Czech Republic and Latin America, in order to increase penetrationin Colombia - currently just 2% - in line with Chile, Argentina, Peru andBrazil, where penetration stands at 16.6%, 7.2%, 6.4% and 6.2%, respectively.Finally, Telefonica has identified significant synergies, specifically: - From a regional and global perspective, by applying Telefonica's global best practices and leveraging economies of scale. In terms of capex, the ability to purchase network equipment and components on more attractive terms thanks to the launch of a regional purchasing network, the rollout of standardised networks and the centralisation of operations and their monitoring is noteworthy. In addition, Colombia's IT systems will be integrated within Telefonica's regional in-house systems, boosting management efficiency and time to market for services. - In the fixed-mobile business, due to Telefonica's presence in the Colombian mobile telephony business via its stake in the country's second largest mobile operator, there are synergies in terms of network rollout and support services (call centres, human resources, etc.) as well as opportunities for joint sales promotions. Transaction timeline 17 April Signing of Investment Agreement End of April Subscription in cash to the capitalincrease and payment settlement Beginning of the 2nd quarter Deal closes 180 days from 20 April Alliance with Telefonica Moviles or 150 billion million peso cash investment injection Para mas informacion / For further information Direccion de Comunicacion Corporativa Tel: +34 91 584 09 20 Press Office Fax: +34 91 532 71 18 Gran Via, 28 - 3a Planta e-mail: [email protected] 28013 - MADRID http://www.telefonica.es/saladeprensa -------------------------- (1) Colombian pesos (value as of 2006) adjusted by inflation plus 4% (2) Colombian pesos (value as of 2006) adjusted between 2006 and 2012 byannual inflation plus annual 4%, and from 2013 by acumulated inflation plusannual 4% This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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