Nobody can accuse Telefonica of lack of guts - but perhaps this time they didn't do the homework as they should - and they really pushed themselves forward on a premium bid (3x the actual value ) to O2.
Deutsche Telekom said it will not fight over this bid - cannot blame them for being smart - and that's just a pretty strong red alert for the Spanish Group, whether they like it or not.
Looking at the facts, Telefonica has no experience on the British market (which is extremely competitive and full of service providers) and perhaps the past experience with the joint venture with Telia Sonera in the German market could give them some insight about how things happen in places where the market is dramatically different from Spain or Latin America.
See also this article at The Register
6 comments:
I disagree. The price offered is broadly in line with the industry based on the value of their customer base. O2 was undervalued compared to its peers.
Some numbers at Valuation of O2 mobile business.
That is a bold statment - dont tell me, you got the figures from quarter reports? Being forward looking is a normal symptom companies in general show when need to get a bid on...so you know.
Regards.
The article from The Register that you added is interesting, especially in highlighting the dynamics of the two main bidders.
The author suggests that O2 should have held out for £25bn. I do think that would have been too much to pay, but it is amazing what a competitive market can sometimes produce.
My numbers are from the audited annual reports, but note that my conclusion is only that O2 was undervalued _relative to the market_. I think you can reasonably make an argument that the mobile industry as a whole is overvalued. Their core product is wireless connectivity. With WiFi, WiMax, and many other established and emerging standards, that is fast becoming a commodity. There are already handsets that will switch to VoIP within the range of a WiFi zone. And all of these new standards are cheaper to implement and unregulated, which means the mobile operators' huge debts, primarily incurred during the 3G auctions, looks increasingly unservicable.
But compared to the other mobile operators, and looking only at the value of their customers, O2 was undervalued. They may have had some management issues, but so do the other operators big time and anyhow their issues were not to the tune of taking 1/3 off their value.
I agree VoIP will have a tremendous impact on the business model and slice down revenues from voice services – however, until this becomes a reality we need more user-friendly applications (in particular for mobile phones) and more important, consumers to use these applications.
What O2 is doing makes sense, they want to make the most out of this deal - what doesn’t make sense in here is how Telefonica got into this.
Have you noticed the effort O2 has put promoting 3G services - now, look into the way these services are deployed and the technology behind it...... what do you see?
You may also enjoy John Kay's comment. John is an economist I respect greatly, and he is sarcastic about the merger.
The biggest deal on merger Monday was the proposed acquisition by Spain’s Telefónica of O2, formerly the mobile phone subsidiary of BT Group.
Could this be the Telefónica that participated vigorously in the disastrous telecommunications mergers only five years ago? Could the target be the division that BT sold to reduce debts resulting from its own unwise acquisitions? Yes, indeed. A second marriage, Dr Johnson remarked, represents the triumph of hope over experience. In the merger market, hope springs eternal.
Ouch.
Time will say.
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