O2 Czech Republic reportedly moving on with infrastructure spin off

By bne IntelliNews February 26, 2015

O2 Czech Republic is moving closer to implement a plan to spin off its mobile and fixed infrastructure into a separate company, local media reported on February 26.

Facing anger from minority shareholders over their treatment since closely-held Czech financial group PPF bought the telecom, O2 CR has done its best to avoid confirmation that it would split the company. However, while officially the plan is still under consideration, Hospodarske Noviny cites unnamed sources at the company as saying that some staff have already been offered jobs at a newly-created firm starting in June.

The daily says that the new company, Ceska Telekomunikacni Infrastruktura, was founded by O2’s majority owner PPF in August. The news should further anger O2 CR shareholders, who protested in December when the mobile company approved a controversial CZK25bn (€900mn) loan to PPF - which is owned by the Czech Republic's richest man, Petr Kellner.

Ever since PPF bought a 65.9% stake in the mobile operator from Spanish Telefonica in early 2014, the market has been wary of its intentions. PPF is not in the habit of operating under shareholder scrutiny and analysts promptly began speculating that O2 CR would soon be delisted.

PPF has in the meantime raised its stake to 83% through buybacks. In January the company filed a request to delist its global depositary receipts (GDRs) from the main market of the London Stock Exchange, effective as of February 28.

On top of the worries over delisting and the large loan - which is likely to slash dividends - O2 CR's spin-off plan has helped pile pressure on the company’s stock. The shares have lost around one third of their value since the start of 2014.

Investors appear to have priced in a spin off, despite the protestations from the company. O2 CR shares traded around 0.7% higher in Prague as the morning session ended.

The media report is "another sign that the spin-off could take place this year and we see a relatively high probability of the separation," write analysts at Erste. "[T]he feasibility study is not yet done, but should be in the coming weeks."

The ever-feisty Erik Best expresses some of the fear and anger amongst shareholders in his Final Word note. The fact the new spun off infrastructure company is reportedly owned by PPF, not O2 CR, suggests the assets will be sold at a “knock-down price,” he warns.

“Why, after all, give minority owners a stake in all that EU money that PPF plans to get for high-speed internet infrastructure ... ?” Best asks. "Of course, O2 [CR] will have all the proper papers, including a fancy valuation from a Big Four accounting firm. The Czechs have invented a word for this. It's called tunneling."

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