Multinational telecommunications giant Millicom announced on February 10 an agreement with Spanish telecommunications company Telefónica for the acquisition of the latter’s Chilean subsidiary, which provides Internet, Pay TV, fixed phone and mobile phone services under the Movistar brand. The acquisition is to be made by Millicom jointly with NJJ Holding, whose owner is Xavier Niel, a French businessman who is a major shareholder with a 40% stake in Millicom.
According to a press release, “NJJ and Millicom International Cellular today announced the acquisition from Telefonica of 100% of Telefonica’s interest in its Chilean business, representing 99.4% of the company, through a jointly controlled vehicle owned 51% by NJJ and 49% by Millicom. Telefonica will receive an initial closing payment of USD 50 million and be entitled to additional earn-out consideration up to USD 150 million based on structural value creation.”
The press release includes the following explanation: “Although Millicom will initially hold a minority stake, the company will operate the business from day one and will apply the Millicom operational playbook to stabilize and strengthen the asset, drawing on its extensive regional experience.” In this way, Millicom is expanding its portfolio in Latin America, where it provides Internet, Pay TV, fixed phone and mobile phone services under the Tigo brand. The company is already operating in Colombia, Bolivia, Paraguay, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama. In addition, it is about to enter the Ecuadorian and Uruguayan markets by acquiring local Movistar units from Telefónica.
The agreement contemplates the future possiblity of acquisition of the whole capital stock by either purchaser, with Millicom having priority to exercise the option. In fact, after the fifth and sixth years post-closing, Millicom will be entitled to acquire NJJ’s 51% stake at a valuation based on then-prevailing market prices less a 10% discount, payable in cash or with Millicom shares. If Millicom does not exercise its option, NJJ will have a call option to acquire Millicom’s 49% interest “on similar pricing terms”. As explained by the company in its press release, “This structure enables Millicom to capture long-term of a strategically expanded presence in South America while maintaining a healthy balance sheet and preserving financial flexibility.”
Although Millicom was a natural candidate for the acquisition of Telefónica’s Chilean subsidiary on account of its relevance as a leading telecommunications company in Latin America, it was not on the list of candidates reported by the Chilean press in the last few months: WOM, Entel and América Móvil. In fact, a few days ago Chilean newspaper El Mercurio reported that WOM had made a binding offer. “Milicom, welcome to Chile, see you in the streets fighting for the hearts and minds of the 20M Chileans,” wrote WOM CEO Chris Bannister on social media.
The sale of its Chilean subsidiary is an approach to Telefónica’s final departure from Spanish-speaking Latin America. Although once present in almost every country in the region, today the company operates only in Venezuela and Mexico.
