KKR and GIP Nab Communication Consolidation Award of $16 Billion

KKR and GIP Nab Communication Consolidation Award of $16 Billion


It’s never easy with Vodafone Group Plc. As true, British Telecom is trying to get its cake and eat it by partially selling its mobile tower business to a consortium led by private equity firms Global Infrastructure Partners and KKR & Co.

Results? A complicated bargain when shareholders are eager to simplify.

Vodafone emptied part of the unit, Vantage Towers AG, in an initial public offering in March 2021. But it wants to sell more to reduce debt and move from majority ownership to joint control.

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

Vodafone and minorities get €32 per share for their shares, which means that the shares are worth €16 billion ($16 billion) for Vantage. Board seats will be divided equally between the consortium and the UK company. The valuation – 26 times delayed 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 that deal; This is their consolation prize.

All this creates some uncertainty in the short term. Trying to buy minorities is a red hedge rag to pressure Vodafone and its new partners for a higher offer: Vantage shares are already trading above the offer price. It’s also not entirely clear what the exact ownership split between Vodafone and the consortium will be. Thus, Vodafone says its revenue could range between €3.2 billion and €7.1 billion.

Of course, everything will become clear in time. Vodafone will no longer have to worry about the impact of the unit on its accounts, allowing Vantage to get the highest leverage that infrastructure assets can support. You will be well positioned for future mergers and acquisitions in the telecom tower industry.

However, Vodafone’s shareholders might have been better served if the company had been willing to cede control of Vantage and do a cleaner deal. Selling a majority stake would have meant a bigger deal, but still possible — not least when debt markets were fully open last year. Cellnex Telecom SA, Vantage’s European competitor, is primarily interested in the purchases it can combine. So it is not clear if it is really a serious contender for this “jointly controlled” asset, which will reduce competition in the auction.

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

Vodafone shares are trading at levels last touched in 2020. Billionaire telecoms entrepreneur Xavier Neal, who disclosed a 2.5% stake in September, lobbied with the comment that he saw opportunities to accelerate the “streamlining” and decoupling of infrastructure assets, implying that Vantage. He was right to do so.

For whatever reason, deals don’t seem to come easily to Vodafone. CEO Nick Read allowed France’s Orange SA to collaborate with rival Masmovil Ibercom SA in Spain, missing an opportunity to participate in the merger. He was unable to turn interest in the Italian business of Vodafone from Niel and purchaser Apax Partners LLP into a deal.

It might be normal for a company to try to keep fingers in as many pies as possible. But one of the reasons Vodafone is such an unpopular stock is that it is very difficult for investors to get around their various partnerships and sprawling operations. The goal should be to get rid of the non-core assets from the less effective and simpler Vodafone. There is clearly a lot to do.

More from Bloomberg Opinion:

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• Athletes Retreat From Sports Sponsorship: David Fickling

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

Chris Hughes is a columnist for Bloomberg Opinion covering deals. Previously he worked for Reuters Breaking Views, Financial Times and The Independent.

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