The collapse of the European ‘telecos’ in the stock market encourages corporate operations
Deutsche Telekom analyzes the viability of launching an takeover bid to control Telefónica.
The ‘telecos’ are not going through their best moment on the stock market. The sector has been one of the most affected in recent years and Covid-19 has been the last straw by adding more uncertainty in the markets of the Old Continent. Without going any further, José María Alvarez-Pallete himself, president of Telefónica, highlighted in his last general meeting of shareholders that the falls were due to the fact that the markets are “highly distorted” by an “environment of uncertainty” and that the price of the action “has been affected; we are not immune to this situation.”
These drops not only occur in Spain but also in Europe. If we take as a reference the Stoxx Europe 600 Telecommunications, which brings together the main European listed companies, it can be seen that the penalty during this year is around 15%. Percentage that is not very significant for one reason: it includes companies that manage communication towers, such as Cellnex, and that have been protagonists (for the better) in recent years. However, in the midst of the initial impact of the coronavirus on the markets, this sectorial index was the lowest in more than two decades and its lowest level since 1997, although it has recovered some ground in recent weeks.
With this scenario, the market capitalization of the majority has fallen notably and has left the majority of the sector within reach. Without going any further, the British telecommunications giant BT would have hired Goldman Sachs to update its defense strategy after the collapse of the share price that it has suffered in the market and that could cause Deutsche Telekom (it owns 12%) or an investment fund decides to undertake said purchase, according to SkyNews. This defense, in the case of our country, is collected by the Government since its Decree-Law 8/2020, of March 17, on extraordinary urgent measures to face the economic and social impact of COVID-19, included protection for companies against a possible hostile takeover bid.
The sights in this process of possible takeovers is on BT Group and it is no coincidence. The British ‘telecom’ is the worst hit among the main European companies, accumulating a 63% drop in the last three years. The second most penalized is the Spanish Telefónica, only two percentage points below (-61%) and Telecom Italia would close the podium after suffering a punishment of around 55%. Others like Vodafone left more than 45% while Orange fell around 30% in that period of time.
In fact, it is not by chance that one of the possible interested parties in the British company is Deutsche Telekom. The German company has weathered the storm in the markets in recent years and has only lost 2% in the last three years, with a market capitalization of over 71,000 million euros. Size very far from other of its ‘rivals’ that have suffered in the trading floors: Telefónica capitalizes less than 19,000 million and Telecom Italia is below 8,000 million. Even so, the German has already starred in another great corporate movement after the union between T-Mobile and Sprint, approved this year by the US authorities, and which led to the creation of the third largest group in that country after AT&T and Verizon.
This move would not be the first nor, probably, the last within the sector. Since Covid-19 hit, corporate operations have followed one another over time and the most notable has been the merger of Virgin Media, owned by Liberty Global, and O2, the mobile network owned by Telefónica in the country, valued at some 31,000 million pounds. In addition, in our country we have also attended an takeover bid by KKR, Providence and Cinven to acquire MásMóvil, which values the company founded by Meinrad Spenger at around 3,000 million euros.
This cartel of ‘discounts’ in the sector makes some of its large shareholders oppose the prices offered by the funds. For example, Polygon, owner of 1.02% of MásMóvil, has rejected the terms of the bid formulated by Lorca Telecom on the telecommunications operator on the understanding that it undervalues it and seriously damages the interests of shareholders since it does not allow them to sell at a fair price.
Diego Morín, an IG analyst, told La Información that “we are facing a time of great uncertainty due to the coronavirus situation, an aspect that large funds take advantage of to expand their businesses to other countries. In fact, the telecommunications sector has Much attraction in recent months due to the strong boom with the implementation of 5G, a technology that will attract a lot of competition. Therefore, given the moment in which we find ourselves, many telecommunications companies or from different sectors will be exposed to this type of corporate movements “.