Acquisition would enable Telefonica’s O2 to surpass Deutsche Telekom and Vodafone.
Telefonica has signed an €8.1bn deal with Royal KPN to acquire its German wireless division E-Plus, which makes it the country’s biggest mobile-phone operator by customers.
The deal is still awaiting regulatory clearance, and antitrust approval, while Telefonica Germany has reportedly agreed to pay a €100m breakup fee if antitrust watchdogs choked the deal.
Upon the expected completion of the transaction in the first half of 2014, KPN would receive €5bn cash and a 17.6% in the newly merged firm valued at about €3.1bn.
According to Telefonica, the cash payment would be funded through a €3.7bn rights issue countersigned by Telefonica Deutschland, while Telefonica will fund about €2.84bn in line with its existing 76.8% stake in the company.
Telefonica aims to trim down net financial debt to below €47bn by the end of 2013.
The deal, which would make Telefonica the second largest European operator with 43 million customers and generating revenue volume of about €8.6bn, will also boost the company’s growth as well as cash generation profile.