Regulators will end the most rational bubble: SPACs | Opinion

Three centuries have passed since the launch of “a company to carry out a company of great advantage, but no one knows what it is.” It’s easy to think that only fools would invest in a shell firm that doesn’t state its objective. But the investors in the most famous of the so-called bubble companies, which emerged in London in 1720, were not complete idiots. As its shares were issued partially paid, they were highly leveraged at a higher price. Some made 30 times their initial fee. Now, most of the participants in the craze for blank check vehicles, special purpose takeover companies, or SPACs, are rational. But even rational bubbles eventually explode.

The 1720 firms encompassed a wide variety of offerings, such as “settling in Terra Australis,” making starch from potatoes, the hair trade, as well as others for supplying funerals, extracting gold and silver from lead, and “for empty the necessary houses ”(public toilets). The goals of SPAC’s recent batch are even more ambitious: flying taxi startups, synthetic meat, recyclable plastic, and, of course, a cannabis producer. Many make electric vehicles, sensors and batteries, these are renamed “electrification solutions for commercial applications.”

This year, more than 300 have been launched, raising 93 billion dollars, more than in all of 2020. But not everyone is 100% committed. Investors in these IPOs can ask for their money back when it merges with their target. What’s more, they can keep the warrants of the merged entity. In effect, they are buying convertible bonds without risk. The prefusion SPACs are giving double digit returns. A group of hedge fundsKnown on Wall Street as the “SPAC Mafia,” they use leverage to get bigger profits.

The promoters have an even more lucrative business: in the IPO, they put some cash to cover the costs. In return, they receive warrants and a 20% stake. The odds are so great in their favor that they can even win from trades that destroy value for other shareholders. At the time of the merger, the SPAC raises more in a so-called “private investment in public capital,” or PIPE. New investors are offered lower-than-market stocks, warrants, and other sweeteners.

It is estimated that the listing through a SPAC is three times more expensive than a traditional IPO: it sounds strange that this is chosen. But it offers a faster way to go to market, and thus take advantage of the speculative euphoria. When Tesla soared into the stratosphere, many SPACs announced mergers with new industry firms.

The promoters of 1720 made impossible promises. Those from the SPACs also speak of fantastic prospects. Unlike conventional IPOs, firms that merge with SPAC have more freedom to forecast sales, earnings, and valuations. Silicon Valley is delighted to turn to this “lemon market” to shed its failures: WeWork plans to debut through a SPAC.

The big losers are those who buy shares at launch, but don’t trade them in the merger, and those who buy after the merger. Not only is this Monopoly money, but your investment is diluted by all those warrants and the huge participation of the promoters. Why do they do it? Theorist Bill Bernstein suggests that people who enjoy gambling are willing to pay more for shares than they are worth. His “investment entertainment price theory” (Inept) explains why investors stick to SPACs even though, on average, they are guaranteed to lose money.

It is no coincidence that the SPAC market slowed in late February, in tandem with the collapse of GameStop, traded by Inept investors at Robinhood. The SPACs have many fronts. Its all-you-can-eat buffet is disappearing, as the number of warrants issued on IPOs falls. The impending expiration of the 2020 trading locks could soon flood the market with more SPAC shares. It is feared that the hundreds of them looking for operations will have problems finding suitable partners, as well as obtaining PIPE financing. Promoters are on the tightrope.

Several are lowering their goals. For example, when electric car battery maker Romeo Power announced a SPAC in October, it was forecasting sales for 2021 of 140 million, with growth of 59% in five consecutive years. But at the end of the first quarter, he lowered his forecast for 2021 to 18 million. It has fallen more than 75% from the high.

The SEC says it is examining “some significant and yet undiscovered SPAC issues.” It suggests that they may not have properly accounted for their warrants. It will also clamp down on shell companies that make misleading statements during their mergers. If the “safe harbor” rule that protects SPACs from lawsuits is removed, as seems likely, their advantage over conventional IPOs disappears. There is also concern that some may have spoken to their merger partners before their IPOs: if true, it would be a blatant breach of market rules.

In June 1720, the English Government declared that companies that had not been officially endorsed by Parliament were a “public nuisance.” That regulation wiped out the firms in the bubble, and its collapse brought down the London Stock Exchange. Only two of those companies continued to operate. Historians will undoubtedly call the SPAC frenzy the most rational bubble the world has ever seen.

The authors are columnists for Reuters Breakingviews. Opinions are yours. The translation, of Carlos Gomez Down, it is the responsibility of Five days


UK Gives Provisional Green Light to Merger of O2 and Virgin, Key for Pallete | Companies

Relief for Telefónica in the UK. The British competition authority, the CMA, has given a provisional green light to the merger of O2, the British subsidiary of the Spanish company, with Virgin Media, owned by the American LIberty Global. The operation is valued at 35,800 million and will create a telecommunications giant in the country, which with 46 million lines, between mobile, fixed broadband and television, seeks to threaten the historical leadership of BT. For this reason, the authorization of competition is key.

“A thorough analysis of the evidence gathered during our investigation has shown that the agreement is unlikely to lead to an increase in prices or a reduction in the quality of mobile services, which means that customers should continue to benefit from strong competition.” , has indicated the CMA. The competition authority, in this case the European Commission, has already thwarted a key operation of Telefónica O2, its sale to Hutchison in the spring of 2016.

Like the former, the integration of O2 and Virgin is key to the plans of the Spanish company and its president, José María Álvarez Pallete, in reducing debt. With the operation, teleco foresees a debt reduction of between 6,300 and 6,652 million euros, and an initial payment of 6,500 million euros. At the end of 2020, Telefónica’s debt was around 35,000 million, although the teleco pointed out that, with the pending operations, the merger of O2 and Virgin, and the sales of Movistar Costa Rica and the Telxius towers to American Tower, indebtedness would be around 26,000 million.

The operation was announced in May last year, in the midst of the pandemic, and a few months later the United Kingdom asked Brussels for the operation’s file, in view of its characteristics and the end of the post-Brexit transition process.

The CMA has indicated that its analysis has not focused on possible duplications in the retail markets, without considering whether the operation may reduce competition in the wholesale market, that is, in the rental of services to third-party operators.

Virgin rents lines to operators such as Vodafone or Three to complete its own networks, while O2 rents its network to alternative mobile operators. The CMA feared a price hike in these areas, but has provisionally ruled out this possibility, indicating that customers should continue to benefit from strong competition.

The final approval could take place during the month of May, according to industry sources, who point out that it is highly unlikely that the CMA could change the direction of its decisions. From the outset, Telefónica’s management has demanded approval without conditions, recalling that, in 2015, the United Kingdom gave the green light to a very similar transaction, the purchase of Everything Everywhere by BT, also without setting conditions.

Both partners have worked with that conviction. In fact, already in the second half of 2020, they completed the recapitalization of the joint venture, with the raising of more than 6,100 million euros between credits and bonds. Last week, Telefónica and Liberty announced the management structure of O2 Virgin Media. Thus, Lutz Schüler, from Virgin will be the CEO of the new operator, while Patricia Cobián, financial director of O2, will occupy the same position in the joint venture.

In addition, Liberty Global has accelerated in recent weeks the segregation of Virgin Media’s business in Ireland, which was not part of the agreement with Telefónica.

Telefónica and Liberty have argued that the merger combines the mobile strength of O2, with an ambitious 5G deployment, and the weight of Virgin Media in fixed broadband. One of the promises of both partners is the acceleration of the deployments of the next generation infrastructures, both mobile 5G and fiber. In this case, the Spanish group has highlighted that it will contribute its experience in the deployment in markets such as Spain and Brazil.

Telefónica shares started the session with slight decreases, amid the doubts that surround the markets. In the first minutes of trading, they are left around 0.7%, up to 3.71 euros. Various analysts have agreed that the approval of the merger of O2 and Virgin Media should be a catalyst for the recovery of the matildes.


French fund giant negotiates Lyxor purchase | Company | 04/07/2021

Europe’s largest asset manager, the French fund company Amundi, is negotiating the purchase of Lyxor with the major bank Société Générale. The parties are targeting 825 million euros as the purchase price, announced Europe’s largest fund company. Lyxor has assets of 124 billion euros under management. 77 billion of that are in exchange-traded funds (ETFs).

Lyxor ranks third in Europe behind the DWS brand Xtrackers and well ahead of the top dog iShares from Blackrock. Amundi itself operates an ETF division. With the merger, the French hope to overtake DWS and catch up with iShares. Even then, the European ETF market will still be dominated by iShares, according to data from Refinitiv Lipper.

Advantage in competition
“The acquisition of Lyxor will accelerate the development of Amundi,” says Amundi-Noch CEO Yves Perrier, who will vacate his post in May. “The purchase strengthens our expertise, particularly in ETF and alternative asset management.” The deal will also strengthen the relationship with Société Générale. Amundi itself was formed from the fund subsidiaries of the French financial institutions Société Générale and Crédit Agricole. The latter still holds the majority of the listed fund company.

A price war is raging in the rapidly growing ETF market. The big providers are fighting for market share. A larger volume gives them economies of scale compared to their competitors. “In view of the high potential for synergies, this transaction, which is compatible with Amundi’s financial discipline, would add significant value,” the statement said. There have been several speculations about a sale about Lyxor. In addition to Amundi, DWS was also considered an interested party.

Strengthen Paris
The French also see the takeover as an opportunity to strengthen Paris as a financial metropolis within the EU. “Ultimately, the transaction will help position Paris as a financial center after Brexit by creating a European market leader for passive asset management in France,” said Amundi boss Perrier, who will hand over his position to Valérie Baudson in May.(are)


Telefónica meets with the EU to see the impact of Brexit on the merger with Liberty

Telefónica had a meeting less a month ago (last October 19) with staff from the European Commission in order to assess the impact that Brexit may have in your operations, specifically with the merger with Liberty (Virgin Media), on which the regulatory authorities have to comment imminently.

The representatives of the telecommunications company run by Jose Maria Alvarez-Pallete held the meeting with María Inmaculada López Martínez, member of the cabinet of Josep Borrell, vice president of the European Commission in charge of coordinating the foreign action of the European Union, as reflected in the transparency document of the meeting, to which he has had access Vozpópuli.

The matter dealt with was, as reflected in the aforementioned document, “discuss the possible Implications that the Brexit negotiations may have on Telefónica“The news comes at a time when Boris Johnson, the English prime minister, and Ursula Von der Leyen, president of the European Commission, have given each other until Sunday to try to circumvent a Brexit with tariffs, more tough than expected Negotiations have revealed differences that, for the moment, seem insurmountable.

During the meeting, the operator’s representatives asked the members of the European Commission how the current situation of tension could affect around Brexit at the close of the deal with Liberty. Brussels officials assured the delegation that “there does not have to be any delay in the operation”, as this media has learned.

This is not the first meeting around the merger with Liberty held by Telefónica within the European Union. Last May, he held another meeting with representatives of the European Commission in which they also discussed the merger with the British operator.

The alliance will allow O2, Telefónica’s brand in the United Kingdom, offer telecommunications services together with Virgin Media. Telefónica, which only has mobile telephony in the region, would be complemented by the Liberty subsidiary, which has broadband and television – but not mobile telephony services. Both corporations want to close the operation as soon as possible. In the UK, the converged packet market is not yet mature. Starting to offer services as soon as possible is an interesting competitive advantage.

Brussels transferred to London a few days ago -at the end of November- the decision to give the green light to the merger, a joint venture 50% owned by both companies. Liberty had to compensate Telefónica to close the operation with 6.3 billion euros, an amount calculated based on the debt that Virgin owns. O2 has no financial commitments, hence the compensation. The Spanish operator will foreseeably use this amount to reduce debt.

The merger will result in a giant with 34% of the market share, which will place it 2% above British Telecom, until now the leader in the United Kingdom, according to Goldman Sachs. BT has 18% of the market share, while Three has 9%.

Margallo’s son lobbies for Telefónica

Telefónica invests two million euros a year in putting pressure on the European Union to defend its interests in the old continent.

In total, the team of lobby of Telefónica in Brussels maintains four people with access to the headquarters of the European Union, located in the famous Berlaymont building: Frederick De Backer, Eduardo Lanza Saiz, Carlos Alberto Rodríguezz Cocina and José Manuel García Margallo -son of the former Minister of Foreign Affairs during the presidency of Mariano Rajoy-.


S&P negotiates the purchase of IHS Markit for 37,000 million | Companies

S&P Global is in advanced negotiations for the purchase of the financial information firm IHS Markit, in a transaction of 44,000 million dollars, about 37,000 million euros, which would be the second largest of the year, according to the Bloomberg agency, citing sources close to the conversations. The eventual acquisition would create a giant in the economic data provision sector by bringing together two of the largest operators in the sector.

IHS Markit, which is up 23% so far this year, provided data, analysis and market research reports (such as PMI purchasing manager surveys). The combined company would have a market value of $ 82.2 billion, or € 69 billion, in the event of the merger, which could be announced today, according to Bloomberg.

S&P, for its part, is known for its activity of assigning financial ratings to states and companies, as well as for its data on capital markets and commodities. The company was spun off in 2011 from its parent, educational publisher McGraw-Hill.

The union comes months after another major consolidation in this sector, such as the London Stock Exchange’s offer to purchase Refinitiv, the financial information firm that previously operated under Reuters, acquired by the Blackstone fund in 2011. The changes In the form of investment and in the massive use of market information they have created the breeding ground for the formation of these data giants, which in any case must convince the authorities that they do not occupy a monopoly position. The London Stock Exchange, in fact, is still negotiating the Refinitiv operation with the European Commission, and from the outset it has had to sell the Italian Stock Exchange.

In fact, IHS Markit was also created from mergers of data providers. IHS bought Markit in 2016 for $ 9.8 billion in 2016 combined IHS sector information services with Markit indices for financial products such as CDS, at a time when automated financial trading demanded large amounts of information.

It remains to be seen, in any case, whether the eventual integration of IHS and S&P has the approval of the regulators, given the growing concentration of this market.

S & P’s deal with IHS Markit would be the second-largest merger this year, behind only the sale of gas and oil pipelines from several Chinese oil companies to a newly created company, a $ 56 billion deal. The transaction between IHS Markit and S&P Global was advanced by The Wall Street Journal. According to the newspaper, the operation would be closed entirely through the exchange of shares.


Kristine Braden: “Citi works in a Brexit scenario without a final agreement” | Markets

A woman at the top of an investment bank is still a rarity. Kristine Braden, managing director of Citi in Europe and CEO of the firm’s Germany-based broker, is one of the pioneers paving the way to which they will reach. With a career of more than 22 years in the entity and after having held positions of maximum responsibility in Switzerland, the Dominican Republic, Hong Kong, the Philippines and Egypt, among other countries, her last mission was to be the director of the counselor’s cabinet. Citi delegate at the planetary level, Mike Corbat. “I am extremely proud of the culture of diversity and inclusion that Citi promotes,” she says. Installed in Frankfurt just when Covid-19 broke out and after doing an enormous job there, it answers the questions of Five days through a questionnaire.

He pilots the broker that provides service to the European Union after dispensing with, due to Brexit, the one that was based in London. What will the final break with the UK look like?

I want to hope that an agreement is still possible. But given that the situation remains uncertain, Citi has based its planning on a scenario in which the United Kingdom leaves the European Union without a final agreement or a transition period.

What consequences would a rough Brexit have?

London will remain a key financial center, regardless of the bottom line, because the UK is an important business center in its own right, as well as serving the rest of the world. But we will certainly see a reconfiguration of trade flows and foreign direct investment, both to the UK and to the EU. We look beyond Brexit to the possible opportunities that this situation will represent for our clients in both jurisdictions. From a cultural and geographical perspective, we have deep roots in Europe. For example, in Spain, Belgium and Italy we have been operating for more than 100 years.

Will there be more business movements from the UK to continental Europe?

We already have a relevant presence on the continent, with around 14,000 employees serving our customers in Europe. We have planned to add more than 200 new positions in several key markets, in a combination of staff transfers and new employee onboarding.

Cross-border bank mergers will depend primarily on regulatory frameworks

What will be the structure of Citi in the EU after the exit of the United Kingdom?

After Brexit, we will essentially operate from two vehicles: our bank, Citibank Europe, whose headquarters are in Dublin, and our investment firm or broker, Citigroup Global Markets Europe, with headquarters in Frankfurt. Our staff consists of some 14,000 people in 23 countries, including Norway and Switzerland. We have also expanded our presence in key capitals such as Madrid, Paris, Dublin, Luxembourg, Milan and Amsterdam, so we are well positioned to serve our clients. We were prepared last March and we are fully prepared for January 1st.

Has there been a problem with the creation of the bank in Ireland and the transfer of the broker to Germany?

Not fortunately. We established the headquarters of our European bank in Dublin before the Brexit referendum took place, and it is seamlessly integrated into our European network of 23 countries. Our investment company in Frankfurt is fully operational and we are preparing to be under the supervision of the European Central Bank in the future. We have already carried out operations for our clients and we expect flows to increase substantially in the periods before and after January 1, 2021.

From that key date, what will be the growth plans in Europe?

I believe the greatest growth opportunities are in our corporate and investment banking and capital markets businesses, and in our foreign trade and treasury solutions. In both cases, they provide services to the main companies and financial institutions. Private banking and commercial banking also have unique opportunities to grow their penetration and market share in the region. After a very solid 2020 for the markets, we expect volumes to normalize in 2021; however, overall, we continue to invest to enhance our capabilities.

We have expanded our presence in Madrid, Paris, Dublin, Luxembourg, Milan and Amsterdam

Will there be more changes in Spain, in addition to the transfer of its core of private banking from southern Europe to Madrid, How did CincoDías publish on March 16?

Spain is an important market for us in Europe. We are one of the leading banks in investment and corporate banking, capital markets, private banking and transactional banking for large Spanish and multinational companies, as well as one of the main banks in helping to raise financing for the country.

How has the bank dealt with Covid-19 with its employees and clients?

I am extremely impressed by the resilience of all our staff, not only in Europe, but also around the world. Since the start of the pandemic, more than 200,000 employees have adopted telecommuting, and that has involved a huge effort for the operations and technology teams. Our priority has been and will continue to be the health and safety of our employees. We also focus on our clients and assist them, both in their immediate liquidity needs and in advising them on their long-term strategic corporate decisions.

What has been Citi’s role in the markets during the pandemic?

In March, we reopened the European corporate bond market, with an offer for European companies, Engie and Unilever. Our head of corporate debt capital markets conducted that transaction from his kitchen table! Another iconic operation, in this case in Spain, was the advice of Telefónica on its operation in the United Kingdom, which has been the largest operation of the year, and which was successfully closed at the height of the pandemic. We were also very active in the syndicated loan sector for European clients, participating in 13 of the 14 loans signed in Europe, the Middle East and Africa in the first quarter.

In Spain, we have the first major banking merger with Bankia-CaixaBank, pending approval at the meeting. And after the break between BBVA and Sabadell, the negotiations between Unicaja and Liberbank are ongoing. Will there be more operations of this type in Europe?

Increasing difficulties we face – such as Covid-19 – tougher regulatory requirements and pressure to maintain cost efficiency and profitability are conditions that are precipitating consolidation in the industry. Our perspective is that there will be an increase in consolidation at the national level, but cross-border consolidation processes will depend primarily on regulatory frameworks.


BBVA doesn’t have to spend all the money in the US on mergers | Opinion

Caution is the best part of the value of BBVA’s mergers and acquisitions. The bank has confirmed the negotiations for the acquisition of Sabadell. Even after the operation, Chief Carlos Torres will have plenty of capital to spare. Mexico, not Turkey, offers better opportunities for higher profits.

If Torres has something, it is light feet. On the same day that it agreed to sell BBVA’s US unit for 9,700 million euros (with a considerable premium compared to book value), the talks with Sabadell for the acquisition of the entity were confirmed.

A union would almost double BBVA’s market share in Spain to 20%, according to Morgan Stanley’s analysis. Furthermore, any price will be cheap: even after a 27% rise in the last five days due to rumors of an imminent offer, Sabadell’s shares are still trading at just a quarter of tangible book value.

And if BBVA manages to cut 42% of the costs of its objective, in line with the proposal to merge CaixaBank with Bankia, the net savings of 3,400 million euros in restructuring costs could amount to 6,300 million once taxed and capitalized.

Assuming that BBVA pays a fifth of the premium, valuing Sabadell’s equity at 2.9 billion euros, Torres would have a juicy Tier 1 ratio of ordinary capital of 13.1% after the American sale. That means 4.2 billion euros of excess capital above the 12% minimum threshold of CET1. If BBVA decided to dispose of Sabadell’s operations in the United Kingdom, that booty would be even greater.

Expanding into Turkey, which represents 16% of the BBVA group’s profits, is tempting. Shares of Garanti, the local bank in which Torres has a 49% stake, have fallen 22% this year. A one-quarter premium acquisition would cost 2.7 billion euros, leaving a good amount left over for Torres’s stated intention to buy back shares once regulators allow it.

Still, it would be better to use the cash in Mexico. BBVA already has 23% of the loan market. Deploying capital there, as its Spanish rival Santander does, would consolidate its leadership position. Furthermore, the return on equity there, from 24% last year, is roughly double that of Turkey.

BBVA shares fell 4.4% on Tuesday, as is often the case if investors are concerned about an onslaught of value-destroying M&A. Torres could reassure them by pointing out that Sabadell could be their last merger for a while.

The authors are columnists for Reuters Breakingviews. Opinions are yours. The translation, of Carlos Gómez Down, it is the responsibility of Five days


Sabadell continues to climb while profit taking is imposed on the rest of the sector | Markets

In full hangover after the strong rises registered yesterday by the banks, today the collection of profits is imposed, except in Sabadell. The shares of the Catalan entity rise around 3% although in the first stages of the day it has risen more than 5%. Yesterday, Sabadell shares closed with a 24.5% revaluation due to the intense rumors that circulated throughout the day, confirmed at the close, of BBVA’s interest in taking over the Catalan bank.

Today, BBVA shares fall 5% after rising 15.8% yesterday. After the market closed, BBVA itself acknowledged that it had started conversations with representatives of Banco Sabadell. And that they are doing the work of due diligence.

The rest of the banking sector that yesterday jumped on the bandwagon of increases today is also suffering from selling pressure. Thus, Santander falls 1.4% while the shares of CiaxaBank yield close to 1%; Bankinter loses 0.65% and Bankia falls 0.3%.

Yesterday afternoon, both BBVA and Sabadell explained in separate communications that “there is no certainty that it will be adopted or, in that case, about the terms and conditions of a possible operation” to create a bank with 46,000 employees and more than 4,200 offices in Spain, in addition to a significant presence in Mexico, Turkey and the United Kingdom.

Since the beginning of September, after the announcement that CaixaBank and Bankia were studying their merger, rumors about a possible union of BBVA and Sabadell began to sound strongly, even mentioning the possibility of joining Kuxabank in the operation.

The news of the talks for a merger came the same day that BBVA announced the sale of its subsidiary in the United States for 11.6 billion dollars, about 9.7 billion euros, the largest operation in the group’s history, which gives it a wider margin to invest in the markets in which it operates.

Several analysis houses have improved their recommendation for BBVA. Swiss investment bank Credit Suisse has raised BBVA’s board to neutral from underweight and sets a price target of 3.9 euros, a potential 6% from yesterday’s close. This valuation is higher than the average valuation of the consensus which is 3.4 euros.

On the other hand, Société Générale has improved the recommendation for Sabadell from sell to hold and improves the target price to 44 cents from the previous 26 cents.

For their part, Bankinter analysts explain that the sale of the activity in the US by BBVA raises Turkey’s weight over the whole, which is delicate from a strategic perspective (and the applicable risk premium). “Taking into account the difficulties it would face in selling Turkey in view of the delicate situation of that economy and the progressive weakening of the Turkish lira, the only quick way for BBVA to dilute its weight of Turkey as a whole is to increase its weight in Spain “, these experts explain in a report in which they have improved the recommendation for BBVA and Sabadell, from neutral to buy.

The analysis firm considers that this corporate operation will go ahead for the above reason and because Sabadell “has a highly vulnerable position both from the balance and profitability point of view, with an ROE of 1.5%”.

For his part, Pedro del Pozo, an analyst at Mutualidad de la Abogacía, also applauds the operation since “it would be a good operation for both” since “the Basque bank, with a Spanish business that somewhat dilutes its exposure to emerging markets and the Catalan entity with a definitive push to his tribulations of the last years “.


The merger of Telefónica and Virgin will suffer a year of stoppage if the United Kingdom enters

Fear of dark clouds in Telefónica’s flagship corporate operation. He UK competition regulator, known by the acronym CMA, has entered the scene asking to be the one to decide on whether to give the green light to fusion of O2 and Virgin, an operation that would allow the Spanish operator to reduce its financial debt by more than 6,200 million. The British body wants to be the ‘judge’ and that the European Commission yield the witness. If so, the delay is the main fear. And this could be up to one year, which would lead to the closing of the merger in 2022.

Everything started a week ago. The teleco chaired by José María Álvarez-Pallete presented the credentials of the ‘joint venture’ to Brussels, as La Información advanced. It did so by giving some more ‘extra’ detail in the summary document, confirming that in principle it includes its percentage of the subsidiaries that it shares with Vodafone, for the management of the telephone towers, and with Tesco, for the sale of packages of mobile rates. They went to the Commission because, based on current regulations, it is the Directorate General for Competition that must give its blessing. But everyone, including the legal team of the two operators, assumed that the CMA would take action. And so it has been.

“As the merger will only affect UK consumers, and the effects will only be felt after the end of the transition period [del Brexit], It is correct that the CMA requests it, “he pointed out in his statement. That is the allegation they make: although legally today it is up to Brussels, they they believe they are the authorized voice, given the horizon of the departure of the European Union from the country led by Boris Johnson. In this way, the Commission has until November 5 to give an answer: if it authorizes the operation or if it hands over the case to its British ‘colleagues’.

In Telefónica there is a clear concern about this possible transfer of the case. And the reason is in the times. According to knowledgeable sources, this would mean up to twelve more months of waiting, as there would be a first phase of between 6 and 8 months where you should study all the documentation delivered. And the opening of a second phase would be likely, which would last a minimum of another three months but which, based on the size of the transaction, would even reach six. In a very different order of magnitude, this twelve-month period has been given in operations such as that of the online ticket resale platforms Viagogo and Stubhub, which has been stuck since December and a response is expected just twelve months later, or the entry of Amazon in the shareholding of Deliveroo.

“Transferring the case to the CMA would delay this process and our ability to move forward with improving the UK’s 5G and broadband infrastructure, while creating new jobs in the UK,” they said in a statement. joint declaration of both companies, which they insisted that the European Commission should approve “quickly” The transaction therefore “respects the rules of competition and will bring substantial benefits to UK consumers.” In both cases, there is a rush to try to extract as soon as possible all the synergies – estimated at more than 6.25 billion pounds – in the middle of a new wave of consolidation in the sector.

Brexit is a factor that distorts everything, as there is a political struggle between both parties that could affect this decision. It is true that the analysis will be bordering on the deadlines, since the transition period ends on December 31. According to sources close to the operation, the EU-United Kingdom agreement provides that the Brussels Government is competent to hear the case even if the effects are on the British market and transfer to the CMA would only be justified in case there were problems of major competition.

The background is clear. In the purchase of O2 by Hong Kong company Hutchison in 2015, which implied the reduction of competitors by merging the Telefónica subsidiary with the operator Three in the country, the CMA also made a similar attempt, claiming precisely that authority by limiting itself to the British market. There was an addition: British Telecom had decided to go to them to authorize the purchase of the mobile operator EE for 12,500 million pounds on those dates. Finally, Brussels decided to take center stage. But the country’s CNMC wanted to press for the acquisition to be overturned and proposed a series of corrective measures (known as ‘remedies’).

O2 steals few clients from Movistar: not 15% of registrations come from Telefónica

A thermometer for fusions

All the operators of the sector in Europe look to Brussels this time. And they do so at the beginning of a wave of consolidation with which the number of competitors could be reduced in the coming years. It is assumed that there will be more unions and mergers and the position marked by the Commission could serve as a thermometer for other operations that occur in the future. It would not be decisive, but it would be important. The reason: it is an acquisition within a market, a move that would have a greater facility to achieve the green light. The real challenge will come with the unions between operators of different countries with significant size.

Analysts are more optimistic. And companies (and their investors), too. One of the points in favor, and that may mark the future decisions of the competition authorities, is the ruling of the General Court of the European Union (TGUE) of last May in which overturned the decision to veto, precisely, the purchase of O2 by Hutchison in 2015. The court understood that the alleged effects on the effect on prices and on the quality of services had not been sufficiently demonstrated.


The United Kingdom claims Brussels the investigation of the merger of Telefónica O2 and Virgin | Companies

The British competition authority, the Competition and Markets Authority (CMA), has asked the European Commission to transfer to the United Kingdom the investigation and the final decision on the merger of O2 and Virgin Media, British subsidiaries of Telefónica and Liberty Global, respectively.

In a statement, the CMA recalls that Telefónica and Liberty notified their plans for the operation to the European Commission on September 30. Brussels gave until November 5 to make a decision.

The British authority believes that in this case, the file should be transferred to the United Kingdom because the potential impact on competition will only be in some retail and wholesale telecommunications markets in the country itself.

Furthermore, the CMA warns that, although Brussels has had a strong interest in the past to ensure consistency in various mergers in the telecommunications sector, now the Community position is no longer relevant given the imminent end of the transition period for the exit of the United Kingdom from the European Union.

The CMA indicates that the initial limit for Brussels to respond to this requirement is on November 19, 2020. The British competition regulator states that it has been in close contact with the European Commission in its investigation to date and will continue to do so in should Brussels decide that jurisdiction over the case should not be transferred.

In principle, the fact that it is the British authorities instead of Brussels who investigate the operations, would be more favorable for obtaining the go-ahead. Last May, in the announcement of the merger, José María Álvarez-Pallete, president of Telefónica, defended that the operation will not affect competition, recalling that another very similar operation, the purchase of Everything Everywhere by BT in 2015, which involved the integration of a mobile operator with a fixed broadband telecom, was approved by the British authorities with hardly any conditions.

A resolution that contrasted with the decision of the European Commission in 2016 to block the sale of the aforementioned O2 to Hutchison Three because it meant reducing the number of mobile network operators from four to three, affecting British users. This community decision, which penalized Telefónica’s debt reduction plans, came just weeks before the Brexit referendum, where UK voters voted in favor of leaving the European Union.

The official request of the CMA has done well for Telefónica on the Stock Market. Its shares rise more than 3% after noon, to 3.24 euros, and maintain the rebound of the last days, after having lost the level of three euros last week.

Faith of errors