Telefonica Sells Unicom Stake, More to Come 西班牙电信出让中国联通股份，更多此类事件将发生

By newsdoug on June 11, 2012

Telefonica sells down Unicom stake The Eurozone debt crisis is starting to offer some interesting M&A opportunities for cash-rich Chinese firms, as reflected by the decision by leading Spanish telco Telefonica (Madrid: TELF) to sell half of its stake in China Unicom (HKEx: 762; NYSE: CHU) to raise desperately needed cash. (English article) This development comes as Spain became the latest Eurozone nation to request a bailout for its banks over the weekend. As the crisis builds, a growing number of cash-strapped companies like Telefonica are selling off assets, providing an opportunity for outward-looking Chinese firms to pick up some interesting bargains. Let’s look at this latest news, which has Telefonica selling 4.6 percent of its stake in Unicom, China’s second largest telco, back to Unicom’s state-run parent for $1.4 billion. (English article) Telefonica previously purchased about 10 percent of Unicom several years ago following a reorganization of China’s telecoms industry, calling the purchase part of its broader global strategy to move into more developing markets. Clearly the Eurozone debt crisis has become a more pressing issue since then, with Telefonica selling off the Unicom stake together with several of its other assets to raise money as conditions rapidly deteriorate in its home market. Telefonica will still own about 5 percent of Unicom after this latest sale, but I wouldn’t be surprised if it soon sells that remaining stake as well. Long-time followers of Unicom will recall that the company had to choose between Telefonica and South Korea’s SK Telecom (Seoul: 017670) in picking a foreign strategic investor after the industry’s restructuring 3 years ago. It ultimately decided on Telefonica, but this latest sale could perhaps see SK Telecom or another major Asian telco come in and take over as a new strategic investor, which Unicom desperately needs as it struggles to develop its underutilized state-of-the-art 3G network. Meantime, this sale also signals a potential new wave of interesting M&A opportunities could soon be coming for Chinese firms looking to expand globally. The sale comes just 2 weeks after another similar deal saw China’s State Grid, the country’s largest power grid operator, buy power transmission assets in Brazil from another Spanish company, ACS (Madrid: ACS) for $531 million and the assumption of another $411 million in debt. (previous post) Both of these deals send a similar message, namely that debt-heavy European companies are starting to feel a growing burden from the worsening Eurozone crisis, forcing companies in some of the hardest hit countries to start selling off assets. We could easily see many more similar assets being quickly sold in the months ahead, especially from companies in the hardest hit countries of Spain, Greece, Ireland and Portugal, all of which have either already sought bailouts or are likely to need them soon. Spain and Portugal probably offer the most interesting opportunities for Chinese companies, as these 2 countries own lots of assets in developing Latin American markets that might be of particular interest to Chinese firms. Accordingly, look for more such deals in the months ahead, with companies from infrastructure-related industries like telecoms, and the power and energy sectors most likely to offer the most interesting deals.

Bottom line: Telefonica’s sale of its China Unicom stake reflects a rising debt burden faced by Eurozone companies, which are likely to sell off more assets to Chinese firms in the months ahead.

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