Vodafone Surges on Possible IPO, Stake Sale of Towers Unit
The business will own the continent’s largest tower portfolio of 61,700 masts in 10 countries: Vodafone
(Bloomberg) -- Vodafone Group Plc shares gained the most in more than a decade on the phone carrier’s plan to carve out its towers business and consider an initial public offering or minority stake sale of the new unit.
The stock rose as much as 10.4%, the biggest intraday jump since November 2008, after the carrier announced plans to separate Europe’s largest towers portfolio alongside financial results that beat expectations. The business, which will operate independently by May 2020, will include 61,700 masts in 10 countries, Vodafone said in a statement.
The move comes out of a review started last year by Nick Read, shortly after he became chief executive officer, to consider how to raise money from infrastructure. Since then, Read has been pursuing infrastructure-sharing with rivals. The proceeds would help the cash-strapped company lower debt as it’s trying to fund the rollout of fifth-generation mobile networks.
Vodafone and Telecom Italia SpA have now finalized a towers-sharing partnership in Italy to create the country’s largest mast operator, people familiar with the matter said on Friday. As part of the deal, Vodafone will own about 37% of Telecom Italia’s mobile tower unit Inwit SpA, the people said.
Vodafone said it plans to monetize a substantial part of the broader towers unit over the next 18 months after receiving several offers for tower assets. It could IPO or sell a minority stake in the broader unit, as well as selling minority or majority stakes of assets in individual countries.
“We are moving very quickly,” Read, who took over from Vittorio Colao in October, said on a call with journalists. “It’s one of the things that I prioritized coming into the role.”
Vodafone joins European carriers including Altice Europe NV and Iliad SA in taking advantage of rising demand for telecom infrastructure from private equity funds flush with cash.
Higher Valuations
Telecom infrastructure businesses command richer valuations than phone carriers, because they have steady income streams that are insulated from the underlying consumer.
Boston-based American Tower Corp. has an enterprise value 25 times its earnings before interest, taxes, depreciation and amortization, compared to a multiple of about 5 for Vodafone, according to data compiled by Bloomberg. Shares of China Tower Corp., the state-owned wireless infrastructure owner, have surged 63% since the company raised $6.9 billion in an IPO last year.
TowerCo, as Vodafone is calling the unit for now, would have annual revenue of 1.7 billion euros ($1.9 billion) and Ebitda of about 900 million euros. Estimates for its enterprise value vary widely. New Street research analyst James Ratzer said it could be worth 16 billion euros, depending on the company’s structure. Other brokers put the unit’s value between 8 billion euros to more than 20 billion euros, depending on unknowns like future network deals and the debt level.
“These assets trade on high high multiples at the moment where you have strong anchor tenant agreements,” Ratzer said, pointing to investors’ “insatiable appetite for yield.”
The towers plan shows Read is progressing efforts to bring down Vodafone’s debt, which is expanding with the 18.4 billion euro acquisition of Liberty Global Plc’s German and eastern European cable units, approved by the European Commission last week. Vodafone cut its dividend in May to free up cash and is selling its New Zealand business, but S&P Global Ratings raised concerns about its debt this month, putting the company’s BBB+ ratings on watch.
What Bloomberg Intelligence Says:
Vodafone’s tower monetization plan increases confidence that it can reach or even fall below the low end of the 2.5-3x leverage range, leaving flexibility for spectrum or other surprises.
--Aidan Cheslin, credit analyst
Click here for the research
Vodafone shares were up 9.3% to 144.18 pence as of 1 p.m. in London, also helped by first-quarter financial results that were better than expected.
Organic service revenue fell 0.2%, compared with the average analyst estimate for a decline of 0.6%, according to a company-compiled consensus. The carrier benefited from pricing changes in Italy and Turkey and customer losses slowed, even as a sales decline in Spain worsened amid fierce competition with Orange SA, Telefonica and Masmovil Ibercom SA.
Read said the company is now at a “turning point” with regards to its service revenue, implying growth could be around the corner.
--With assistance from Daniele Lepido.
To contact the reporter on this story: Thomas Seal in London at tseal@bloomberg.net
To contact the editors responsible for this story: Rebecca Penty at rpenty@bloomberg.net, Frank Connelly
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