Mobile Operator O2 UK (Telefonica) Moots Market Float Before 2017

The Chairman and CEO of Telefonica SA, Jose Maria Alvarez-Pallete, seems to have all but confirmed that their UK mobile operator sibling, O2, could be floated on the market via an Initial Public Offering (IPO) by the end of 2016, which follows the collapse of their proposed £10.25bn merger with Three UK.

At present the debt stricken Spanish telecoms giant is still struggling with a massive mountain of debt (around £40bn+ of it at the last check) and the European Commission’s decision in May 2016 (here) to reject a proposed merger with Three UK’s parent (CK Hutchison Holdings) hasn’t exactly helped matters.

So far nobody has come forward with a solid offer to buy O2 (Telefonica UK) and so an IPO, which would make the company into a publicly traded one and thus open its stock up for sale via the public market, has often seemed like the most plausible outcome. But they’re still keeping the door open to an outright sale.

Jose Maria Alvarez-Pallete said (Bloomberg):

“We have been working to list [IPO] it, so if today or in the next few weeks we decided to do so, we could do it by year’s end. We could objectively do either one of the two things [IPO or direct sale] by year’s end. If markets closed, we would wait. We don’t have the obligation to list or sell at any price.”

Certainly it’s true that Telefonica could wait, but their debt pile isn’t getting any smaller and shareholders will want to see some firm activity to reduce it before the company suffers a hit to its credit rating and or dividends.

Equally the Brexit vote has hit the UK to EU exchange rate, reducing O2’s potential value, and Telefonica might also wish to get their IPO in before the UK Government triggers article 50 (Brexit), which could hit the exchange rate again. Similarly they may want to do it before BT firm up their convergence (service bundling) position following the successful merger with EE.

At present BT’s eyes are fixed on securing a regulatory deal with Ofcom over the future of their Openreach division, but that looks set to be resolved soon and most likely without a complete split of the business (here). Meanwhile O2’s revenue could be put under pressure if BT’s merger with EE were to result in some even more aggressively priced products.

Some analysts’ speculate that O2 UK could table an IPO as early as October or November 2016.