Telefonica SA (TEF)'s German unit is selling 3.62 billion euros ($4.7 billion) in new stock to help finance the acquisition of E-Plus from Royal KPN NV and create the largest wireless carrier by customers in the country. Citigroup Inc., HSBC Holdings Plc, Morgan Stanley and UBS AG are helping Telefonica Deutschland Holding AG (O2D) sell the shares for 3.24 euros apiece, a 28 percent discount to the theoretical ex-rights price, the Munich-based division of Telefonica said yesterday. The shares slipped 1.2 percent to 5.73 euros at 9:15 a.m. in Frankfurt. The sale helps Telefonica complete the 8.55 billion-euro transaction, which received final approval from the European Commission last month. The acquisition, Telefonica's biggest since its $31 billion takeover of O2 Plc in 2005, creates a carrier with 45 million subscribers, ahead of Deutsche Telekom AG and Vodafone Group Plc. (VOD) "We expect the share price to come under pressure given the dilutive effect of the transaction, high remedies offered to get approval from cartel authorities and competition for investors' money given the current IPO pipeline," Bankhaus Lampe analyst Wolfgang Specht said in a note. A discount of 15 percent to 20 percent would have been more appropriate, Specht said. Guaranteed Sale The subscription period for the sale runs from tomorrow through Sept. 23, Telefonica said. The commission had been concerned that removing E-Plus, known for pioneering discounts and new products, would reduce competition in Europe's biggest telecommunications market. To appease the regulator, Telefonica Deutschland agreed to sell as much as 30 percent of the merged carrier's network capacity to smaller operator Drillisch AG. The targeted amount of the capital increase is guaranteed to be reached because Telefonica, which owns a 77 percent stake, will buy all the new shares to which it is entitled, and the banks managing the offer agreed to purchase any shares not acquired, Telefonica Deutschland said. Following the July 2013 agreement to buy E-Plus, the company said it would raise about 3.7 billion euros in a rights issue. The prospectus will include a description of the dividend policy for the combined entity and a proposed cash dividend of at least 700 million euros for the financial year 2014, payable in 2015, Telefonica Deutschland said. Outside of Germany, Telefonica is on the acquisition trail as well. Last month it agreed to enter exclusive talks with Vivendi SA to acquire the French company's Brazilian broadband division GVT. Telefonica offered 7.45 billion euros for the business. Source :Bloomberg
