Millicom backs out of $570 million deal for Telefonica's Costa Rica unit

FILE PHOTO: A general view shows the Telefonica headquarters in Madrid, Spain, June 12, 2018. REUTERS/Juan Medina/File Photo

MADRID (Reuters) - Millicom International Cellular TIGOsdb.ST said on Saturday it would back out of a $570 million deal to buy Telefonica's TEF.MC Costa Rican business, creating a headache for the Spanish company as it looks to sharpen its focus on core markets in Europe and Brazil.

Luxembourg-based Millicom said Telefonica had failed to secure regulatory approvals needed for the sale to go ahead by May 1, granting it the right to pull out.

Millicom, which gave no reason for its decision to exit the deal, did not specify which approvals were still pending but said it would vigorously defend any legal action brought by Telefonica.

Telefonica declined to comment on Millicom’s decision.

Earlier in the week, Telefonica had said all the conditions needed for closing the deal had been met and it would sue Millicom if it failed to honour the deal.

Costa Rican business newspaper El Financiero quoted the government as saying it had given the necessary authorizations.

The Costa Rica unit formed part of a broader package of Central American operations also including those in Panama and Nicaragua which Telefonica agreed to sell to Millicom in February 2019 for $1.65 billion. The other elements of the sale are unaffected by the Costa Rican decision.

Telefonica last November announced a turnaround plan to bring in 2 billion euros ($2.2 billion) a year in extra revenue by hiving off more of its Latin American businesses and focusing on its core markets of Spain, the United Kingdom, Brazil and Germany.

Reuters on Friday reported that Telefonica was exploring a merger of its British mobile business O2 with Liberty Global’s Virgin Media cable network.

Reporting by Nathan Allen; Additional reporting by Ismail Shakil; Editing by James Drummond and David Holmes