Telefonica to price German shares low

SPAIN’S TELEFONICA SA is expected to sell shares in its German O2-branded subsidiary at the lower end of its indicative price range, four sources close to the sale said yesterday.

Europe’s largest telecoms company by revenue has told investors it plans to price the shares at €5.50 to €5.60 each, the sources said.

At the top of that range, and if a 15 percent over-allotment option is exercised, Telefonica would raise about €1.45 billion ($1.88 billion), making it the largest European initial public offering (IPO) since July last year.

On Friday, Telefonica said it was looking for a range between €5.50-€6.00, narrowed from original guidance of €5.25-€6.50.

While new listings in Europe have begun to pick up after months of inactivity due to choppy stock markets, those working on deals say investors are still choosy about which companies to back and are unwilling to pay over the odds.

Listing a 23 per cent stake of its O2-branded German subsidiary on the stock market is part of the Telefonica’s efforts to cut its €58 billion debt and hang on to its prized investment-grade rating.

Telefonica, which declined to comment, closed the order books on the sale at 1300 GMT yesterday and bankers will travel to Madrid to decide on the final pricing, another person said.

The shares are expected to begin trading on October 30th.

The IPO, which is being organised by JP Morgan and UBS, will be Germany’s biggest listing since Tognum raised €2 billion in July 2007.

It will also be the biggest IPO in Europe since Spain’s Bankia raised €3.1 billion in July 2011.

In Germany, O2 is the smallest mobile operator with roughly 16 per cent of subscribers, trailing Deutsche Telekom, Vodafone and KPN’s E-Plus. Some analysts have said its targeted valuation was high compared with peers.

Telefonica Deutschland, which owns the O2 brand, has attempted to woo investors with the prospect of a €500 million dividend next year, contrasting with its parent’s decision to cancel its payout for 2012. Analysts said that investors could move their money out of Telefonica to the German unit because of the dividend yield.