This week marks a significant move for Telefonica as it announces the sale of its Chilean mobile unit to Millicom and NJJ, both owned by French billionaire Xavier Niel. The transaction, valued at $1.2 billion, sees NJJ taking 51% of the business, while Millicom holds 49%. Interestingly, despite the smaller stake, Millicom will manage daily operations.
Marcelo Benítez, Chief Executive Officer of Millicom, expressed optimism, stating, “This gives NJJ and Millicom operational control from day one and the ability to capture long-term growth potential at an attractive valuation, without compromising our financial strength.” Telefonica is set to receive an initial payment of $50 million with a deferred sum of $340 million. Furthermore, Telefonica has the chance to earn an additional $150 million based on future performance.
Both companies have the right to buy the other’s stake after five and six years, with Millicom’s option having priority.
Since 2019, Telefonica has been retreating from the Latin American market, focusing on Spain, Germany, Brazil, and the UK. Under CEO Marc Murtra, the pace of this retreat has accelerated. Telefonica has already exited markets in Argentina, Peru, and Colombia. Discussions concerning the Chilean unit have been ongoing for approximately a year, with other potential buyers like America Movil, WOM, and Entel showing interest.
While Telefonica redirects its focus, Millicom expands its reach in Latin America. The company has previously acquired operations in Colombia, Ecuador, and Uruguay for over $1 billion. This move is akin to a regional expansion strategy.
Millicom’s willingness to buy previously struggling businesses indicates their commitment to establishing a solid foothold in the Latin American telecommunication landscape. For Telefonica, divestment poses both advantages and challenges. On one hand, it allows a greater focus on core markets. On the other hand, the loss of potential growth areas might be scrutinized.
Critics may argue that withdrawing from an evolving region like Latin America might limit Telefonica’s long-term strategic flexibility. However, the focus on strengthening core markets can provide a more stable revenue base.
