Vodafone Group has agreed to buy 100% of Ono for €7.2bn (US$10bn). It finalised a deal with the Spanish cableco’s private equity owners on Saturday after a week of conducting due diligence.
The transaction, which includes debt, means Vodafone adds…
Vodafone Group has agreed to buy 100% of Ono for €7.2bn (US$10bn). It finalised a deal with the Spanish cableco’s private equity owners on Saturday after a week of conducting due diligence.
The transaction, which includes debt, means Vodafone adds broadband, pay-TV and fixed line services to the mobile offering it already provides in the country.
The much anticipated transaction marks Vodafone’s first takeover since it closed the US$130bn sale of its 45% stake in Verizon Wireless. Vodafone is financing the Ono purchase using its cash resources and committed but undrawn bank facilities.
Vodafone has been pursuing Ono for a number of months, while the Spanish operator has been conducting a dual track process. On Thursday at an AGM Ono shareholders voted to continue with IPO preparations, yet that process was said to have been slowed to allow time for Vodafone to make an acceptable binding offer.
Ono’s network covers 13 of Spain’s 17 regions, passing 7.2 million homes, and it boasts 1.9 million subscribers. Vodafone, which is working on its own FTTH network, said the two networks were compatible.
According to Vodafone the agreement values Ono at 7.5x 2013 EBITDA and 10.4x 2013 operating free cash flow, adjusted for cost and capex synergies. It will make the savings by utilising Ono’s network for mobile backhaul, limiting Vodafone’s FTTH build plan to 1.5 million homes passed, and the migration of Ono’s mobile traffic to Vodafone’s network.
Vodafone is also aiming to achieve €1bn of revenue synergies through its distribution and marketing capabilities, and through cross-selling to each company’s customer base.
Last week Ono reported €1.6bn in revenue for 2013 and €680m in EBITDA. Vodafone was advised by Morgan Stanley and its board also received advice from Robertson Robey Associates. Meanwhile Deutsche Bank has been Ono’s lead adviser.
Ono is 54.4%-owned by investment firms Providence Equity Partners, Thomas H. Lee, CCMP and Quadrangle, which invested €1bn into the company in 2005. The rest of its stock is held by other institutional investors.
Vodafone expects the transaction to complete in calendar Q3 2014.
Where next for Vodafone?
The deal is Vodafone’s latest move in its new converged strategy that it has been pursuing in Europe. It has been looking to acquire operators which enable it to provide broadband, fixed-line telephony and pay-TV alongside its traditional mobile offering.
This began last year with the acquisition of Kabel Deutschland, when it paid €7.7bn for 76% of the operator.
However, according to IHS analyst James Allison, Vodafone may have trouble continuing down this route: “The big problem it’s going to have is: Where?”
Allison pointed out that in Italy and Greece there is no cable, Ziggo and Virgin have been bought out by Liberty Global in the Netherlands and the UK respectively, while in Portugal Zon has merged with Optimus.
Vodafone could pursue fixed-line assets, but Allison said this means missing out on pay-TV which is an important component.
Ovum analyst Emeka Obiodu expected Vodafone to continue scouring the European market for deals, but warned not to expect the group to systematically build up its portfolio of assets in a short time.
“It will be on a piecemeal basis, based on where they see an opportunity to do something,” Obiodu said.
“We can’t sit here and articulate a grand strategy where Vodafone are buying up all the cable assets in Europe – it’s not going to happen.”
Could kick off Spanish consolidation
While Vodafone might have difficulties to identify targets that fit its convergence strategy going forward, Berenberg analyst Wassil El Hebil believes the Ono deal could kick off consolidation in the Spanish market.
The acquisition of Ono gives Vodafone the biggest fibre optic network in Spain where it covers 7.2 million homes, whereas Telefonica has 3.5 million, plus a significant DSL network. It leaves third mobile player Orange Spain as the only major operator without fibre and suggested it may now look to acquire Jazztel. TeliaSonera-owned Yoigo, Spain’s number four mobile operator and smallest network operator, may also look to do a deal.
In Orange’s Q4 conference call in early March its CEO, Stephane Richard, reaffirmed the group’s commitment to Spain.
Richard said that there was “nothing on the agenda” for now, but said that “Spain is, apart from France, probably the key market in Europe where we will try to really focus our resources to play the consolidation”.
El Hebil felt that Orange, Yoigo and Jazztel now have to join forces to be as competitive as Telefonica and Vodafone.
“The problem is greater for TeliaSonera – they really have to do something now,” El Hebil said.
“Maybe they will be the first to go after Jazztel and come out of nowhere, and force Orange’s hand, or they could sell Yoigo to Orange, but they did not sell last year due to valuation and now with this consolidation their asset is worth less.”
The other opportunity for consolidation in Spain lies in the north of the country, where Ono’s fibre network does not reach, and instead there are three independent cablecos that are currently owned or part-owned by private equity.
In an interview with TelecomFinance in February, Ono CEO Rosalia Portela said – when the company was planning to float – that the cable operator could look to consolidation deals.
In the context of the conversation she mentioned regional operators R Cable, held by CVC, Carlyle’s Telecable, and Euskaltel, whose owners include PE firms Investindustrial and Trilantic Capital, without directly saying if Ono would like to acquire them.
El Hebil said that Vodafone would look at the assets but they would not be a priority, and instead they would focus on integrating Ono before turning their attention to the smaller players.
