Rather than a buyout, this feels more like a
merger or a
partnership between
BT and
Telefónica.
BT doesn't have the cash to buy
O2 outright. And it apparently won't fund the purchase through borrowing since that would impact its credit rating.
Instead, BT wants to part-merge with
Telefónica in an equity swap.
[A]ccording to reports from Spain, Telefonica would seek a mix of cash to pay down its massive debts and BT stock in exchange for its UK arm [O2].
Ivan Palacios, an analyst at Moody’s, said that an all-cash deal would have a negative effect on BT’s Baa2 credit rating. However, he added that he would not expect BT to aggressively use debt financing as "it would contradict its stated ambition of achieving a Baa1 rating". As a result he said that BT was likely to use equity "to reduce the amount of debt needed".
Exchanging its own shares (through a new share issue), together with cash, to fund the acquisition of
O2 from
Telefónica. In the deal on the table,
Telefónica would end up owning about a 20% stake in
BT, making it by far the largest shareholder. [1] [2]
The two companies confirmed the talks after a report in the Spanish media said Telefónica was negotiating taking a 20% stake in BT in exchange for O2.
That's why this is more a merger than buy-out.
Unlike
Telefónica which is mired in debt,
BT remains relatively cash-rich. Thanks, in no small part, to those huge BDUK subsidies it receives from the British taxpayer.
BT's full year profits for 2013 were reported as £2 billion on group revenues of £18 billion.
It's rumoured that
Telefónica would use the cash proceeds from the
O2 sale as vulture funds to move in on the Ibero-American telecoms market, a region ripe for economic looting (aka "liberalising") In an equity tie-up with
Telefónica,
British Telecom would become a partner in that
economic imperialism.
Again, from the
Wall Street Journal [1]:
For Madrid-based Telefónica, it would free up cash for investments in markets where it has a stronger competitive position, such as in Latin America’s largest economies.
Much the same strategy is being pursued in Latin- or Ibero-America by the so-called
Inter-Alpha Group of British banks. [the Ibero-American nations being the former Spanish and Portuguese colonies of the Americas].
British banks have created similar strategic partnerships, through equity swaps, with their distressed counterparts in Spain and Portugal (
Banco Santander,
Banco Espírito Santo/Novo Banco,
Banco Bilbao Vizcaya, and so on). Those strategic partnerships gaining the
Inter-Alpha banks access to that largely untapped yet potentially lucrative Ibero-American market. [3] [4]
The proposed merger/tie-up between
British Telecom and its Spanish counterpart
Telefónica, and
Telefónica's proposal to plough the O2 sale proceeds into Ibero-America, should be viewed with the same concern as the activities of the
Inter-Alpha banking group in that economic region.
[1]
http://online.wsj.com/articles/bt-in-talks-to-buy-telefonicas-u-k-unit-1416824657[2]
http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/telecoms/11254228/BT-shareholders-back-10bn-mobile-takeover-plans.html[3]
http://www.larouchepub.com/eiw/public/2010/2010_1-9/2010-07/2010-07/pdf/14-17_3707.pdf[4]
http://www.larouchepub.com/eiw/public/2010/2010_1-9/2010-07/2010-07/pdf/16-17_3707.pdf