THE Spanish phone giant Telefónica is poised to unveil the flotation of Endemol, the €2 billion (£1.4 billion) television production company behind Big Brother, just two days after announcing a £17.7 billion cash bid for O2.

The float, which will help in a small way to pay off the debt from the O2 deal, is expected to be confirmed by the Spanish company today.

Up to 35 per cent will be listed in the Netherlands, and the expectation is that the business will be valued at up to €2 billion.

The company maintained that the timing of the flotation so soon after the announcement of the O2 deal was coincidental. The proceeds amount to a tiny fraction of the total debt amassed by Telefónica to do the deal.

The loan, arranged by Citigroup, Goldman Sachs and Royal Bank of Scotland, is the largest syndicated loan to be arranged in Europe in the past five years. The only bigger loan was France Telecom’s €30 billion credit to finance its acquisition of O2’s rival, Orange, in July 2000.

Shares in Deutsche Telekom, regarded as the most likely counter-bidder for O2, Britain’s third-ranked mobile operator, fell 1.69 per cent yesterday amid continuing uncertainty about its intentions.

Sources close to Telefónica have emphasised the “clean-ness” of its deal as one its biggest assets. They have highlighted the significant regulatory risks from Deutsche Telekom snapping up O2 when it already has strong mobile operations in the British group’s two key markets — Britain and Germany.

Some believe that any bid for O2 from Deutsche Telekom would stand a minimal chance of getting past competition authorities. However, it is understood that Deutsche Telekom feels that previous deals of this kind show that authorities would not take a black-and-white view.

This year, for example, KPN snapped up Telfort, the Dutch mobile operator, to give the joint entity a near-50 per cent share of the mobile market in the Netherlands. The deal eliminated what was deemed to be the most disruptive price force in the market. Similarly, the tie-up of Deutsche Telekom and Telering in Austria is cited as another example of intra-market consolidation.

One City source said: “Whatever general anti-trust rules exist, telecoms is a very different world and there are plenty of precedents for telecom companies consolidating in this way.”

Endemol Group reported underlying earnings of €181 million last year, and €106 million in the first half of 2005, but the figures in the prospectus are expected to be substantially lower. That could mean that the company will struggle to reach the €2 billion to €2.5 billion price tag that had been mooted previously.

Although Endemol is one of Europe’s big independent production companies, the partial sale of the Big Brother company will do little to dent the Spanish group’s mounting debt pile, because the scale of the business is so small compared to its telecoms activity.

Telefónica acquired Endemol for €5.5 billion in 2000, in the belief that communications and content were converging at the height of the dot-com boom. The Spanish company is being advised by Merrill Lynch and Mediobanca. Merrill also advised on the sale of O2 to Telefónica, but a spokesman for the bank said that the work was being handled by two separate teams.

ON THE LINE

Expected timetable for Telefónica takeover:

• Telefónica posts offer document this month
• Takeover Panel sets 60-day offer period clock running
• Day 21: first opportunity for shareholders to accept offer
• Day 34: the second opportunity for shareholders to accept offer
• Day 60: offer timetable closes
• Process can be frozen if competitor enters fray

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