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Moody's maintains Telefónica's rating after the merger with Liberty Global



Moody's has maintained the 'Baa3' rating of Telefónica with stable outlook after the 'teleco' has announced a merger with Liberty Global in the British market.

In a statement, Moody's explains that the union of the businesses in the United Kingdom into a joint venture 50% owned by both companies, an operation that creates the market's fixed and mobile operator "leader" in the country, will improve Telefónica's market position and scale in this country.

"This agreement does not contribute to the elimination of leverage, because UK assets will be deconsolidated from Telefónica's consolidated accounts, and prorated consolidated leverage will increase marginally as the joint venture will be highly leveraged," explains Carlos Winzer, senior vice president and principal analyst at Telefonica.

"We have affirmed Telefónica's Baa3 rating with a stable outlook reflecting the company's strong position in its core of four countries: Spain, Brazil, Germany and the United Kingdom, which must mitigate the headwinds in the generation of cash flow derived from the weakness of the American currencies and the decrease in income in Spain, due to the increasing pressure from competition and the economic downturn, "adds Winzer.

Moody's believes that the agreement with Liberty Global is positive for Telefónica's credit, since the company negotiates full ownership of an active-only mobile.

The merger, which unites fixed broadband operator Virgin Media and mobile O2, will generate synergies valued at £ 6.2 billion (7,079 million euros), in terms of net present value and excluding integration costs.

Specifically, they estimate some synergies on costs, Capex and revenue of £ 540 million (618 million euros) per year from the fifth full year after closing. To achieve them, they plan to incur integration costs of some £ 700m (€ 801m), most of which should be recorded in the first four years after closure.

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