Patryk Basiewicz

PGB Research

Event-Driven

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<a href="https://www.smartkarma.com/entities/telefonica-sa" target="_blank" data-smartkarma-citation="entities:21299:1" rel="noopener">Telefonica SA (TEF SM)</a> and <a href="https://www.smartkarma.com/entities/liberty-global-plc-a" target="_blank" data-smartkarma-citation="entities:15261:1" rel="noopener">Liberty Global Plc A (LBTYA US)</a> are in talks to merge their UK operations. We do not know what will happen to the Irish bit</li>
<li>The street, as do I, assume this will be a 50:50 JV, similar to the deal Liberty did with <a href="https://www.smartkarma.com/entities/vodafone-group-plc" target="_blank" data-smartkarma-citation="entities:22204:1" rel="noopener">Vodafone (VOD LN)</a> in the Netherlands. </li>
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<p>This transaction will fundamentally, perhaps, permanently, and, perhaps, conclusively reshape the UK telco market. Clearly other market players are currently considering their options with regards to both O2 UK and Liberty as a whole, or the Virgin Media (VMed) part.</p>
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<p>Ultimately, both Telefonica and Liberty Global want to sell those assets too. In my view, this transaction is made with a view to IPO the JV in 2-3 years. This view also informs how we should look at value creation in the deal.</p>
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Joe Jasper

Vermilion Research

Technical Analysis

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<li>The DAX and Hang Seng are reversing their downtrends while MSCI China (MCHI-US) and China Internet (KWEB-US) are currently testing their respective multi-month downtrends.</li>
<li>Reversals of these downtrends would signal a bear market rally in progress.</li>
<li>We will need to see more basing, followed by base breakouts, in order to get bullish -- a process that would likely take weeks or months.</li>
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<li>Since March we have consistently said we believe any bottoming process would likely take weeks or months and could come with more tests of the lows, or even an undercut.</li>
<li>We are testing the March lows now in several global indexes, including the MSCI ACWI (ACWI-US), ACWI ex-US (ACWX-US), and EM (EEM-US).</li>
<li>While this is a logical spot for a bounce, we see rallies as selling opportunities at the index level</li>
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Jesus Rodriguez Aguilar

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<li>KKR is looking at alternatives ranging from raising its stake in Telecom Italia’s grid operations to pursuing a full takeover of the unit, as an alternative to the merger of FiberCop (the crown jewel) with Open Fiber, by which Telecom Italia would own a minority stake in the merged entity.</li>
<li>The merger seems designed to facilitate the generation of cash (by partial disposal and/or enhancing the share price by focusing analysts’ attention on its SOTP). Ongoing restructuring has created uncertainty in Telecom Italia’s intentions and potential actions, which in turn will introduce increased volatility into the pricing of Telecom Italia equity and debt. Vivendi, sitting on a 67% paper loss, is (rightly in my view) concerned.</li>
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<p>I would look to put on any the following strategies: short credit/buy protection, short TIT IM (my SOTP valuation is €0.29/ordinary share), and long savings/short ords.</p>
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<p>The recent reforms incorporate "loyalty shares" as an option, which in practice come to transform the 'one share one vote' rule that prevailed in listed companies to protect equal voting rights of shareholders. The instrument equates the Spanish rules with those of other European Union countries, such as Germany, Italy, France or the Netherlands, among others, and aims to reward long-term investors, also protecting companies against short-term investors (opportunistic funds).</p>
<p>The Government toughens the takeover law before the arrival of 'loyal investors' on fear that hard core shareholders will take control of Spanish companies with the new double voting system.</p>
<p>According to the change in the regulation, an investor who exceeds 30% of the vote of a company listed due to the double voting rights of the loyalty shares, will have three months to decide whether to launch a takeover bid, reduce participation or waive its new political rights.</p>
<p>The Ministry of Finance discreetly introduces the change in the new Securities Market Law.</p>
<p>In Spain, the companies that establish the double voting system will be less prone to receiving a takeover offer. If it is already difficult to carry out an offer now without the support of the hard core nucleus on shareholders (for instance, MásMóvil has had to agree with those of <a href="https://www.smartkarma.com/entities/euskaltel-sa" target="_blank" data-smartkarma-citation="entities:21263:1" rel="noopener">Euskaltel SA (EKT SM)</a> ), it will be next to impossible under the new framework.</p>

Spain

Telefonica S.A. provides telecommunications services mainly to countries in Europe and Latin America.  The Company offers fixed-line and mobile telephone, Internet, and data transmission services to residential and corporate customers.

Telefonica SA - TEF SM

Description