Berenberg: Telefónica's 'Weak' Balance Sheet Could Hold Back M&A Ambitions

08:30 AM EDT, 10/02/2026 (MT Newswires) -- Berenberg believes Telefónica's (TEF.MC) interest in acquiring its rivals in Germany and Spain is constrained by its "weak" balance sheet. "Chairman and CEO Marc Murtra made it clear at the November 2025 capital markets day that Telefónica believed in the benefits of in-market consolidation. However, we are concerned that Telefónica could lose out on its potential targets. In Spain, anti-trust and balance sheet concerns could limit Telefónica's ability to acquire either Zegona [ZEG.L] or Digi Spain [DIGIS.MC], which could limit market repair. In Germany, TEF DE has had a year to court 1&1 [1U1.F] but has little to show for it. The arrival of Vega/Iliad as a Vodafone [VOD.L] shareholder could at least push up the price and delay any potential deal; at worst, it could see 1&1 lost to Vodafone, which has a stronger balance sheet and the potential for higher accretion on our estimates," the research firm said Thursday in a note focused on the telecommunications sector. Analysts expect Telefónica's performance to improve after the 1&1 contract fully lapses in the first quarter of 2027. However, Berenberg noted that excluding the telecommunications group's Vivo unit reveals "high" gearing and an implied valuation for Telefónica Europe, adding that the weak balance sheet continues to restrict organic growth catalysts. Berenberg trimmed the hold-rated stock's price target to 3.20 euros from 3.50 euros, while introducing a price target of $3.63 for the company's American depositary receipt.