KKR and GIP Nab a $16 Billion Telecom Consolation Prize

How

It’s never simple with Vodafone Group Plc. True to form, the UK telecoms firm is trying to have its cake and eat it with the partial sale of its mobile-phone masts business to a consortium led by private equity firms Global Infrastructure Partners and KKR & Co.

The result? A complex transaction when shareholders are craving simplification.

Vodafone offloaded part of the unit, Vantage Towers AG, in a March 2021 initial public offering. But it wants to sell more to cut debt and move from majority ownership to shared control.

The solution unveiled on Wednesday is to put the current 82% holding into a joint-venture company, which will in turn offer to buy out the listed shares. At the same time, Vodafone will sell a stake in the joint venture to the GIP-KKR group. That consortium, which also includes Saudi Arabia’s sovereign wealth fund, will end up with between 32% and 50% of the company, depending on how many minority shareholders sell as well as on its own appetite.

Vodafone and the minorities get 32 ​​euros per share for their stock, implying an equity value of 16 billion euros ($16 billion) for Vantage. The board seats will be divided equally between the consortium and the UK company. The valuation — 26 times trailing earnings before interest, tax, depreciation and amortization — is just below that achieved by Deutsche Telekom AG in its July agreement to sell just over half of its towers business. GIP and KKR lost out on that deal; this is their consolation prize.

All of this creates some short-term uncertainties. The bid to buy out the minorities is a red rag to hedge funds to squeeze Vodafone and its new partners for a higher offer: Vantage shares are already trading above the bid price. Nor is it quite clear what the precise ownership split will be between Vodafone and the consortium. Hence, Vodafone says its proceeds could be anything between 3.2 billion euros and 7.1 billion euros.

Of course, it will all come clear in time. And Vodafone will no longer have to worry about the impact the unit has on its accounts, freeing Vantage to take on the higher leverage that infrastructure assets can support. It will be well-placed for future M&A in the telecom towers industry.

Nevertheless, Vodafone shareholders may have been better served if the company had been willing to cede control of Vantage and do a cleaner deal. Selling a majority holding would have meant a bigger transaction, but still feasible — not least when debt markets were fully open last year. Cellnex Telecom SA, Vantage’s European rival, is primarily interested in purchases it can consolidate. So it’s not clear it was really a serious contender for this “co-controlled” asset, which will have reduced competition in the auction.

Most European telecom operators share Vodafone’s obsession with maintaining influence over their towers. But the wisdom of fudged governance arrangements is questionable; the long duration of rolling mast-rental contracts already provides decent security of access. Telefonica SA has outperformed the sector since offloading its masts business in January 2021.

Vodafone shares have been trading at levels last touched in 2020. Billionaire telecoms entrepreneur Xavier Niel, who revealed a 2.5% stake in September, applied pressure with the comment that he saw chances to accelerate “streamlining” and separating infrastructure assets, implicitly referring to Vantage . He was right to do so.

For whatever reason, deals don’t seem to come easily to Vodafone. Chief Executive Officer Nick Read let France’s Orange SA team up with rival Masmovil Ibercom SA in Spain, missing an opportunity to participate in consolidation. And he was unable to turn interest in Vodafone’s Italian business from Niel and buyout firm Apax Partners LLP into a transaction.

It may be a natural urge for a company to try to keep fingers in as many pies as possible. But one of the reasons why Vodafone is an unloved stock is that it’s so hard for investors to get their head round its various partnerships and sprawling operations. A less leveraged, simpler Vodafone shorn of non-core assets should be the goal. There’s clearly plenty more to do.

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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. Previously, he worked for Reuters Breakingviews, the Financial Times and the Independent newspaper.

More stories like this are available on bloomberg.com/opinion

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