Ladies and gentlemen, thank you for standing by and welcome to Telefonica's Wright issue conference call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session As a reminder, today's conference is being recorded. I would now like to turn the conference over to Mr. Pablo Egeron, who Head of Investor Relations.
Please go ahead, sir.
Good afternoon and welcome to Telefonica conference call to discuss the EUR 3,000,000,000 rights issue. And Pablo, you don't have the Investor Relations. And before proceeding, let me mention that this document contains financial information that has been prepared under International Financial Reporting Standards. This financial information is unaudited. This presentation may contain announcements that constitute forward looking statements, which are not warranties of future performance and involve risks and uncertainties.
And that certain results may differ materially from those in the forward looking statements as a result of various factors. We invite you to read the completely disclaimer included in the first page of the presentation, which you will find in our website. We encourage you to review our publicly available disclosure documents filled with the relevant security, securities market regulators. If you don't have a copy of the relevant facts and the slides Please contact Telefonica's Investor Relations team in Madrid by dialing the following telephone number 3 491428700. Now let me turn the call to our Chief Financial And Corporate Development Officer, Mr.
Angel Villa, who will be leading this conference call.
Thank you, Paolo. Good afternoon and welcome to Telefonica 3,000,000,000 rights issue conference call. I will first go through the presentation and then open the line for Q And A where you will have the opportunity to address any questions you may have. On Slide 2, we have summarized the key terms of the offering. We will raise 1,000,000,000 through a rights issue, corresponding to 281,000,000 new shares.
The proceeds from the offering will be used to partially fund Through the subscription of the Telefonica Brazil capital increase, at least in proportion to our stake and for general corporate purposes. Every existing share will have one right and the subscription ratio has been set as one new share every 16 rights. The subscription price is per share. The subscription and rights trading period will open on March 28 and will end on April 12. Hence, last day of Combrite's trading will be March 27.
The results of the offering and the potential run placement of unsubscribed shares are expected to happen on April 17th. The new shares will be trading 50 days lockup, subject to certain exceptions, and the transaction is fully underwritten by the bank syndicate. On Slide 3, we would like to remind you of the main parameters of the transaction we agreed with Ybendi back in September 19, 2014. The agreement contemplates the acquisition by Telefonica Brazil of GBT, For a cash consideration of EUR 4,660,000,000 and a payment in shares, representing 12% of share capital of Telefonica Brazil after its combination with GBT. The EUR 4,660,000,000 cash contribution will be financed through a capital increase at Telefonica Brazil.
Telefonica will subscribe its proportional share of Telefonica Brazil capital increase corresponding approximately to EUR 3,400,000,000. Partially funding this cash contribution through the EUR 3,000,000,000 rights issue, a smaller amount to minimize shareholder's dilution. As part of the agreement, Vivendi will acquire from Telefonica Shares in Telecom Italia currently representing 8% of Telecom Italia's voting share capital in exchange for 4.5% of Vivendi's take in Telefonica, Brazil after its combination with GBT. As a result of the transaction, Telefonica will hold a 70% stake in the enlarge Telefonica Brazil, with Vivendi holding a 7% and the remaining 23% as free float. The transaction has been approved by Yanatele and CADE subject to certain conditions.
Turning I would like to review First, they are both leaders in the Brazilian market. Telefonica's number 1 mobile operator sorry, Engiviti, the number one Ultra broadband player. 2nd, they have 2 very complementary infrastructure platforms. On the one hand, Telefonica's leadership in the Sao Paulo market is supported by the best 3G and 4g coverage in the market and the best mobile network. On the other hand, GBT has a solid and widespread fiber network throughout Brazil, with the majority of its ultra broadband clients located outside Sao Paulo.
3rd, both companies are the best quality brand names in their respective businesses. Strong commitment towards quality and client satisfaction Moving to Slide number 5, we will create the undisputed national leader in the Brazilian telecom and pay TV markets. From our leading national footprint, core solid 3 play position, we have the core fundamentals needed to deliver the best product to each of our customers. Customer satisfaction and brand awareness are the foundations for taking advantage of significant drivers of growth and profitability. On top of this, we are ready to offer our customers the best in class integrated offer, given our foreplay readiness in our key markets.
Furthermore, we are poised to create significant shareholder value as we extract substantial upside from synergies and continue to deliver leading financial performance and shareholder returns as we have done consistently over the years. The new Telefonica Brazil is the gold standard for investing in the Brazilian telecom sector. We provided a detailed update update on our strategy and positioning during our Q4 earnings call on February 25, 2015. On Slide 6, let me remind you of the key investment highlights for Telefonica. Which I will discuss in more detail on the following slides.
1st, our ongoing transformation is bringing us back to profitable growth. 2nd, we are positioned for growth acceleration 3rd, this growth will be compatible with sustained financial discipline and shareholder returns. Please turn to Slide 7 to review the business, deep transformation carried out. In the 2012, 2014 period. During the past 2 years, we have made significant advances.
We invested in capturing growth opportunities in mobile data and digital services. Took initiatives to improve efficiency through simplification. We reinforced our asset portfolio and derisked our balance sheet. As a result of this, we have built a solid platform and we have clear proof points of this transformation which allows us to upgrade our ambitions for the 2015 2016 period. Looking ahead to 2015 and beyond on Slide 8, we are very well positioned for further growth acceleration.
In Spain, one of our largest markets, macro and market trends look positive, increasing the appetite for higher value services. We are also working to increase our differentiation by broadening our infrastructure and assets in fiber, pay TV and LTE Technologies. At the group level, we will focus on monetizing the new mobile data and video opportunity. We plan to create an environment where everything is connected either through multi device or multi user plans or for improving connectivity with fiber and LTE leading to the adoption of new data services. We will leverage our differentiated mobile and fixed infrastructures and AT upgrades to enhance customer insights.
Our focused portfolio management will create significant value in Brazil and Germany through synergies. We will also continue concentrating on savings over the coming years from simplification across markets. Furthermore, external factors, whether related to macro regulatory or the telecoms industry, have turned from negative to positive. Moving to the next slide. Let me remind you of our financial priorities for the next 2 years, which will be focused on 3 targets.
1st, strengthening our balance sheet, substantial part of the proceeds the proposed disposal of O2 UK will be used to achieve a leverage ratio of net debt to OIBDA below 2.35 times. 2nd, maintaining an attractive shareholder remuneration with sustainable dividend payments coupled with treasury share cancellations. And third, supporting sustainable operating growth by both growing organically and analyzing inorganic opportunities to accelerate value creation as our portfolio strengthening policy remains in place. To finish On Slide 10, you will find a summary of the expected key milestones of the CBT and O2 UK transactions. On GBT, we received approval from Anatel on December 22, 2014.
Cazee has also approved the transaction on March 25, 2015. And the transaction is expected to close in the second quarter of 2015. With regards to the O2 UK disposal, we announced signing of the definitive agreements on March 24, 24 2015. Completion of the transaction is subject to the approval of the applicable regulatory authorities and the obtaining of waivers to certain change of control provisions expected no later than June 30, 2016. This date may be extended to September 30, 2016 under certain circumstances.
Thank you very much. And we are now ready to take your questions on the rights issue, terms and conditions.
You. We would kindly ask you to keep your questions to a minimum of 1 per participant. Also, we would like to kindly ask you to relate your questions to the rights issue. And if possible, we recommend you not to use your cell or hands free phone. We can now take our first question from David Wright of Bank of America Merrill Lynch.
Please go ahead, sir.
Yes, hello. Thank you very much for taking the question. Angiele, if I could just, understand the contribution of the rights issued cash within the guidance framework. And also, you've obviously included the slide in reference to the potential O2 sale. I think your guidance for 2015 net debt to ODA is less than 2.35 times.
I'm assuming that obviously includes, all of the proceeds Do you assume within that, because that's obviously ex UK, X 02 UK? Does that assume any of the proceeds from O2 UK or what is the debt that you de consolidate from O2 UK? I'm just trying to understand how these the rights issue and the sale just fit into that guidance?
Hi, David. The guidance that we presented at the end of February when we announced the full year results and the guidance and outlook included a medium term target of less than 2.35 times net debt to EBITDA, contemplating or including the future proceeds. Of the O2 divestment. So we will have during 2015, a reported figure of net debt and a debt to EBITDA that would be higher than this 2.35 times, but we will be at the same time reporting what would be the adjusted for the pro form a figure and ratio, including the proceeds from UK that will not be received until some point in the first half of twenty sixteen according to our expectations.
I see. And okay. And just to be clear, that's the 1,000,000,000, correct? You don't include the 1,000,000,000 from the earnout cost.
We include the £9,250,000,000 plus the NPV of the £1,000,000,000 because that is a deferred payment. It's not an earnout that will be collected, starting from the point when the combined UK entity achieves agreed level of combined cash flow. So it's a deferred payment, not an earnout. We have our models where we project when that could be. We do the NPV of that figure and that would be the full expected collection that we would have from the UK divestment that we will be using where we'll report on a quarterly basis the adjusted net debt and net debt to EBITDA figure.
That's clear. Thank you.
Thank you, David. Next question please.
Thank you. We'll take our next question from Mandeep Singh from Redburn. Please go ahead, sir.
Hello. Thank you for taking the question. I have a maybe a simple question. You've guided for your group to return to sustainable growth. You've guided for Spain to return to growth in 2015.
And you have guided to pro form a net debt to EBITDA of below 2.35 times after the UK sold. So I'm really asking why are you having a right tissue at all given where the cost of money is? And if your EBITDA is supposed to grow, why do you need this financial flexibility? And the context obviously is when you announced the GBT deal, you hadn't announced the O2 UK sale. And you hadn't announced the return to growth for Spain.
But since then you have, so I'm just really questioning why you need to do the rights issue at all? And whether this gives you financial flexibility to pursue any further inorganic operations, such as buying in the O2 Deutschland minority or Brazilian consolidation?
Yes. Hi, Mandeep. I cannot see this transaction is subject to very strict capital market regulations and constraints. I cannot comment on forward looking expectations. But so avoiding the first part of your question, Why are we doing a rights issue?
Well, basically, we are going to be closing the EBT transaction in the second quarter of this year. And the expected financial flexibility from the O2 UK divestment would be at some point in the first half of next year. And we wanted to have this period with, enough financial flexibility. And not be subject to any type of constraints.
What you might feel constrained?
No. We just wanted, when when we We're analyzing what could be the use of proceeds for the O2 UK from the O2 UK transaction. We wanted to balance the three items that you have on Slide 9 on the presentation on the one hand to improve the balance sheet. 2nd, to improve our, shareholder remuneration and third to have and maintaining our flexibility for organic growth and at the same time, potentially exploring in organic options. So we didn't completely eliminate the rights issue, but we decided to downsize it from originally expected close to 1,000,000,000 to the billion that we finally have, dimensioned it.
In this way, we are alleviating part of the dilution from issuance of new shares Also at the same time, and this was announced back in February 25th, we announced that we're going to be cancelling some shares held in treasury, 1.5% this year. And upon completion of the O2 UK transaction, another 1.5% And this way, we also contribute to mitigate dilution on all the variables per share, EPS, free cash flow per share and so on. So we think that, 1st, we have reduced the amount of the rights issue. And second, we have provided with 2 additional EPS enhancing measures that all of them are targeting a better a more attractive shareholder remuneration.
Thank you, Angel. That's very clear. Can I just have a very brief follow-up? Yes, of course. What do you think for a company with like yours with sustainable EBITDA growth going forward?
What is the right capital structure?
Again, we're in the middle of our capital markets transaction. And I am very much constrained in the type of comments that I can do on this conference call. I cannot respond this type of questions.
Thank you very much.
Thank you, Mandeep. Next question please.
Thank you. We'll now take our next question from Georgio Yirandiya Kanu from Citi. Please go ahead.
Good afternoon. Thank you for taking the questions. I've got one question on the transaction. Which is around the remedies that have been asked as part of the transaction. Is it possible to give us some idea of when will you be able to act as a single company?
Any restrictions with regards to the offers you can have in the market in the next couple of years? In general, what were these type of demands from some of your competitors that you have to meet And my second question, I know it's not relevant to this transaction, but I was wondering whether after signing the agreement with Hutchison, you have already here's the Forex risk around the UK transaction. Thank you.
Okay. Since it's public, I can comment on the remedies of the transaction. We got approvals from the Brazilian competition authority, Kadeh, and the Brazilian telecommunications, regulator, Anatel, Such approvals are both subject to the satisfaction of circuit and conditions. CADE has approved telephonic and GBT deal subject to concentration control terms, which aim to address matters similar to those that Anatel imposed some weeks ago and also to impose some restrictions regarding the temporary indirect state stake that Vivendi will hold in Telefonica, the Brazil and the temporary indirect stake that Telefonica will hold in telecom italia. Telefonica has committed with Kari after taking control of Cbd to comply the same obligations set forth by Anna Del in particular to keep for a minimum of 3 years.
The current geographical services coverage of Cbd and Telefonica, Brazil. 2nd, to keep the current services plans and combine offers for a minimum of 18 months, And third, to expand the operations to 10 new cities outside the state of Sao Paulo not yet served by the extended economic group. Within a maximum period of 3 years. We have also undertaken to keep nationwide for 3 years. The broadband access average speed contracted by CVD's clients for the minimum of the measured level in the month of December 14, And on a corporate level, we have a telephonic undertaken not to exercise any political right in connection with the stake held in telecom, italia, to divest such stake to a third party, subject to conditions set forth in the Concentration Act and not share Telefonica Do Brasil sensitive information with Telecom Italia and subsidiaries in Brazil.
Also, we have undertaken to buy Vivendi's action that could cause the director in direct control of Vivendi over Telefonica, Having said this, we do not see those remedies having a relevant impact in our capacity to compete. Nor it will have any impact on CapEx as some of the obligations were already included in our plans for the company. This is what I can disclose at this stage given the limitations that I was alluding to before. With respect to the O2 transaction, FX has evolved since the time of announcement, in our favor. And we were partially hedged already by debt in pounds that was existing in the company around 2 times EBITDA.
And we are considering hedging policies, which I cannot disclose on this call.
Could I ask just one follow-up on the operational priorities? So the 3 years of keeping the the company separated at 18 months before you can launch combined offers. The relevant one, I guess, is the second one. But you have 18 months where you can't have combined offers, but could, for example, GBT use the Vivo network as an MPNO in the meantime as a way of having some offer out there?
Again, I'm sorry. I cannot, given the restrictions that we have, I cannot comment on this. I would encourage you to ask these questions to my Brazilian colleagues. Thank you.
You can now take our next question from Ivan Liao from BBVA. Please go ahead.
Hello, good afternoon. Maybe following following this one on operational remedies, I don't know if you could share with us, what's the size of all those ten cities you have to cover? Just to have an idea of increased CapEx. And mean, you need to cover that with fiber. You need to cover that with copper.
I don't know exactly the size of those cities, but what I know is that door remedies, we do not expect them to have a relevant impact in our capacity to compete nor do they have any significant impact on CapEx as these type of obligations were already included in our plans for the company. And it would be probably fiber, not copper.
At this time, we have no further questions in the queue.
Thank you very much for your participation. And, we certainly hope that we have provided some useful insights for you. And should you have any further questions, we kindly ask you to contact our Investor Relations department. Thank you and good afternoon.
Telefonica Rights issue conference call is over. You may now disconnect your lines. Thank you.