Analysis | KKR and GIP Nab a $16 Billion Telecom Consolation Prize - The Washington Post

2 years ago 37

It’s ne'er elemental with Vodafone Group Plc. True to form, the UK telecoms steadfast is trying to person its barroom and devour it with the partial merchantability of its mobile-phone masts concern to a consortium led by backstage equity firms Global Infrastructure Partners and KKR & Co.

The result? A analyzable transaction erstwhile shareholders are craving simplification.

Vodafone offloaded portion of the unit, Vantage Towers AG, in a March 2021 archetypal nationalist offering. But it wants to merchantability much to chopped indebtedness and determination from bulk ownership to shared control.

The solution unveiled connected Wednesday is to enactment the existent 82% holding into a joint-venture company, which volition successful crook connection to bargain retired the listed shares. At the aforesaid time, Vodafone will merchantability a involvement successful the associated task to the GIP-KKR group. That consortium, which besides includes Saudi Arabia’s sovereign wealthiness fund, volition extremity up with betwixt 32% and 50% of the company, depending connected however galore number shareholders merchantability arsenic good arsenic connected its ain appetite.

Vodafone and the minorities get 32 euros per stock for their stock, implying an equity worth of 16 billion euros ($16 billion) for Vantage. The committee seats volition beryllium divided arsenic betwixt the consortium and the UK company. The valuation — 26 times trailing net earlier interest, tax, depreciation and amortization — is conscionable beneath that achieved by Deutsche Telekom AG successful its July statement to merchantability conscionable implicit fractional of its towers business. GIP and KKR mislaid retired connected that deal; this is their consolation prize.

All of this creates immoderate short-term uncertainties. The bid to bargain retired the minorities is simply a reddish rag to hedge funds to compression Vodafone and its caller partners for a higher offer: Vantage shares are already trading supra the bid price. Nor is it wide rather what the precise ownership divided volition beryllium betwixt Vodafone and the consortium. Hence, Vodafone says its proceeds could beryllium thing betwixt 3.2 cardinal euros and 7.1 cardinal euros.

Of course, it volition each travel wide successful time. And Vodafone will nary longer person to interest astir the interaction the portion has connected its accounts, freeing Vantage to instrumentality connected the higher leverage that infrastructure assets tin support. It volition beryllium well-placed for aboriginal M&A successful the telecom towers industry.

Nevertheless, Vodafone shareholders whitethorn person been amended served if the institution had been consenting to cede power of Vantage and bash a cleaner deal. Selling a bulk holding would person meant a bigger transaction, but inactive feasible — not slightest erstwhile indebtedness markets were afloat unfastened past year. Cellnex Telecom SA, Vantage’s European rival, is chiefly funny successful purchases it tin consolidate. So it’s not wide it was truly a superior contender for this “co-controlled” asset, which volition person reduced contention successful the auction.

Most European telecom operators stock Vodafone’s obsession with maintaining power implicit their towers. But the contented of fudged governance arrangements is questionable; the agelong duration of rolling mast-rental contracts already provides decent information of access. Telefonica SA has outperformed the assemblage since offloading its masts concern successful January 2021.

Vodafone shares person been trading astatine levels past touched successful 2020. Billionaire telecoms entrepreneur Xavier Niel, who revealed a 2.5% involvement successful September, applied unit with the remark that helium saw chances to accelerate “streamlining” and separating infrastructure assets, implicitly referring to Vantage. He was close to bash so.

For immoderate reason, deals don’t look to travel easy to Vodafone. Chief Executive Officer Nick Read fto France’s Orange SA squad up with rival Masmovil Ibercom SA successful Spain, missing an accidental to enactment successful consolidation. And helium was unable to crook involvement successful Vodafone’s Italian concern from Niel and buyout firm Apax Partners LLP into a transaction.

It whitethorn beryllium a earthy impulse for a institution to effort to support fingers successful arsenic galore pies arsenic possible. But 1 of the reasons wherefore Vodafone is an unloved banal is that it’s truthful hard for investors to get their caput circular its assorted partnerships and sprawling operations. A little leveraged, simpler Vodafone shorn of non-core assets should beryllium the goal. There’s intelligibly plentifulness much to do.