A straightforward quarter, but VMO2 buyout could require a sizable equity raise... 1Q25 results were largely uneventful, with TEF''s new COO deferring most questions to the strategic review due to come in 2H25 (we expect September/October). But Bloomberg headlines this afternoon, suggesting that TEF is drawing up plans to take control of VMO2, saw shares close -3% today. As we detailed in our recent report Big plans - but who will pay for them? any such deal is likely to require a significant equity issuance... Telefonica currently has EUR 27bn of nominal debt and 2.7x leverage, but adding on hybrids (EUR 7.6bn), lease liabilities (EUR 8bn) and employee commitments (EUR 3.6bn) and this rises to ~3.8x. VMO2 has EUR 25.5bn of debt and lease obligations and 5.5x leverage. Hence if VMO2 were consolidated, TEF would need to pay down EUR 8bn of debt to keep leverage at the current 3.7x level (which we view as too high in any case). And that is before buying out the LBTYA minorities, which would cost an additional EUR 2.5bn (based on our valuation, press reports suggest this could be higher). There may well be a creative way for TEF to structure a deal (asset sales/NetCo transaction) - but most scenarios we consider still point towards some level of equity raise. For now of course nothing has been confirmed and TEF may ultimately decide to focus on other deals instead (e.g. acquiring 1and1 or tech businesses). What do we know that we didn''t know yesterday? Results themselves were relatively straightforward - Spanish trends in line with recent quarters, Germany performing better than expected (though full impact of price war/ 1and1 MVNO losses still to come) and HispAm negatively impacted by FX. Has the investment thesis changes? Not yet - still waiting on the strategic review Argentina/Peru are now reflected as discontinued operations and there is also EUR 1.7bn of (non cash) related translation effects and capital losses. There is no change to our EUR 3.20 TP.