Vodafone share price: UK telco set for bidding war with Liberty for Spain’s ONO

on Jan 29, 2014
Updated: Apr 9, 2020

iNVEZZ.com, Wednesday, January 29: UK’s Vodafone Group (LON:VOD) and the US Liberty Global (NASDAQ: LBTYA) seem set to embark on another bidding war, this time for Spain’s biggest cable operator ONO, in their respective quests to grow their market presence in Europe, according to media reports.

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The two telco majors are holding ongoing talks with four investment funds that control a majority stake in the Spanish cable operator, according to Reuters sources. The Financial Times is reporting that neither group has made any approach to the board of ONO and that the talks are “preliminary”, while the stance of Ono management is continuing commitment to a stock market flotation. The Wall Street Journal also reports that the talks are at a “preliminary stage”, with no certainty that they will lead to offers.

Investment funds Providence Equity Partners, CCMP Capital, Thomas H. Lee Partners, and Quadrangle Capital together own 54 percent of ONO, with nine other institutional investors holding the balance, according to the Spanish company’s website.
As gleaned from media data, ONO’s enterprise value appears to be some €7.1 billion (£5.9 billion), based on latest available core earnings (EBITDA) of €752 million for 2012 multiplied by the industry median of 9.4 times. However, some analysts estimate that Vodafone or Liberty would have to bid much higher to beat off the planned IPO, with a banking source quoted by Reuters suggesting a price of 10-12 times EBITDA, or up to €9.0 billion.

Vodafone is well-placed for acquisitions after the $130 billion sale of its 45 percent stake in Verizon Wireless, the largest US mobile operator, to joint venture partner Verizon Communications (NYSE:VZ).
Under the cash-and-share deal, which got shareholder approval yesterday and is due to complete next month, Vodafone will return $84 billion to shareholders and has earmarked a further $30 billion of the proceeds to cut debt and finance growth plans. However, the company’s shareholders may not be willing to pay over the odds for ONO.

The Spanish operator provides fixed telephony, broadband, pay-TV, and mobile services throughout Spain and is the only fibre operator with nationwide coverage for both households and businesses. The company’s own high-capacity fibre optic digital networks provide direct access to more than seven million homes across most of Spain, including the nine largest cities. In 2012, ONO recorded a net profit of €52 million on revenues of €1.57 billion.

**Bidding wars**

Aiming to retain its position as Europe’s number one mobile services provider, Vodafone has been seeking to expand its services so as to offer the ‘quad-play’ packages of mobile, fixed-line, broadband internet and TV services which are popular in many European markets. Vodafone lacks its own high-speed broadband network but has started rolling out fibre optic networks in Spain and Italy. Last year it bought a majority stake in Germany’s biggest cable provider, Kabel Deutschland (FRA:KD8), for €7.7 billion (Vodafone closes Kabel deal).
Liberty also made a bid for Kabel Deutschland, forcing Vodafone to raise its offer, but later backed off after it became clear that the German antitrust regulator would not allow the transaction because of the American company’s already substantial cable assets in Germany.
Vodafone is also rumoured to have been interested in Dutch cable group Ziggo but earlier this week Liberty agreed to buy Ziggo in a cash-and-share deal valuing the company at €10 billion, including debt. The deal was struck at an enterprise value of 11.3 times and follows Liberty’s $15.8 billion acquisition of British cable operator Virgin Media last year.
Controlled by US billionaire John Malone, Liberty derives over 90 percent of its revenues in Europe, where it is the continent’s largest cable operator with operations in 12 countries, though not in Spain.
And whilst Vodafone and Liberty Global are fierce rivals in the European cable market, there is also speculation of a potential tie-up between the two majors (Liberty Global content unit divestment raises odds on Vodafone bid).
In today’s trading, Vodafone’s share price was up 2.0 percent at 227.8p as at 9:11 UTC, compared to a 0.8 percent rise in the blue chip FTSE 100 index.
**As of 8:57 UTC buy Vodafone shares at 228.00p.**
**As of 8:57 UTC sell Vodafone shares at 227.90p.**
*Edited by Frank Quin*
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