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DEAL OF THE YEAR: Domestic M&A Deal

Jan 1, 2013

Telefónica Moviles Colombia / Colombia Telecomunicaciones

Merging the Telefónica Móviles Colombia wireless unit and the fixed-line operations of Colombia Telecomunicaciones (Coltel) seemed a clear way to face the challenge from competitors that had already integrated their fixed and mobile operations.

But this was no simple company reorganization.

The government - which held 48% of Coltel - would have to be involved. That meant compensation and negotiations over the stake in the combined entity, not to mention the authorization process. Spain's Telefónica held the remaining 52%.

There were also debt obligations to divide. These included some 3.5 trillion pesos ($1.91 billion) owed to the Patrimonio Autónomo Receptor de Activos (Parapat), a trust controlled by Coltel's pension fund that owns fixed-line operating assets which Coltel leases.

An expected reduction in net debt of about $1.7 billion as a combined entity helped motivate both parties, although they had differing ideas about how the combination should proceed.

Talks lasted more than a year. Telefónica came out controlling 70% of the merged Colombia Telecomunicaciones entity with the Colombian government holding the balance. The government has a right to increase that stake by 3% in 2015.

The government assumed a 48% share of the debt and agreed to extend the payment date of other outstanding debt held by Parapat until 2028. The deal was finally approved in April. Bank of America Merrill Lynch advised Telefónica Móviles, and Corficolombiana advised Coltel.

The new Coltel is now the second-largest integrated operator in the country. It has achieved synergies of scale, greater flexibility, as well as offer bundled services. Its new strategy is to increase mobile broadband and value added services along with pay-TV services and fixed line broadband access. It plans to undertake a $2.5 billion-equivalent capex programme.

The merger had a successful epilogue in September. Coltel sold a $750 million, 10-year bond in the international markets. Despite the difficulty of explaining the recent tie-up and the resulting structure, the transaction attracted $8 billion of orders. So successful was the issue that the bonds tightened in from price talk of a yield of 6% at the roadshow to a final price of 5.375% and issued at par. Credit Suisse, HSBC and JPMorgan managed the BB rated sale. LF



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