Spain’s Telefónica(NYSE: TEF) said Monday it has reached an agreement with Colombia‘s government to merge fixed-line operator Colombia Telecomunicaciones (Coltel) with mobile operator Telefonica Moviles Colombia.
Telefónica owns 52% of Coltel, with the Colombian government controlling the remaining 48%. Under the agreement, the Colombia government will assume 48% of pension payment obligations, helping reduce Telefónica’s net financial debt of around $1.734 billion (1.3 billion euros).
With the agreement, which is subject to approval by both companies’ shareholders, Telefónica will hold 70% of the combined company and the Colombian state will own 30%, with the possibility to increase its stake by 3% at a future date.
Last year, the Colombian government had said that a merger with a mobile phone operator was necessary as fixed-line growth had stalled due to consumers switching to mobile devices. In December, country’s congress economic committee approved a bill sent by the executive branch to strengthen Coltel’s capital position by $ 1.81 billion.
The proposed merger could boost competitiveness and help pay for “onerous” pension obligations of more than 17,000 former public employees.