Monday, March 20, 2017

Vodafone Group deconsolidating India - which markets are to be wholly-owned?

Vodafone Group is deconsolidating Vodafone India. Here are the specs:

  • Vodafone India (excl. 42% Indus Towers stake) merges with Idea Cellular (listed; incl. 11.15% Indus Towers stake)
  • Vodafone to own 45.1% (after transferring 4.9% to Aditya Birla for INR 39b = $579m cash), Aditya Birla 26.0% (+ option on part of Vodafone's stake to equalise holdings, free float 28.9%, equal voting rights from the start
  • EV Vodafone India INR 828b = $12.4b = 6.4x EBITDA, EV Idea INR 722b = $10.8b = 6.3x EBITDA (excl Indus stakes)
  • NPV of cost & capex savings (60/40) INR 670b = $10.0b (after integration costs and spectrum liberalisation payments), run-rate savings 140b INR/annum = 2.1b $/annum from yr 4 after completion (NPV INR 700b = $10.5b after integration costs ($2b), excl spectrum liberalisation costs (NPV INR 30b = $0.5b))
  • Pro forma net debt YE 2016 INR 1079b = $16.1b = 4.4x EBITDA (pro forma for sale of towers & Indus stake and incl synergies 3.0x EBITDA)
  • To close 2018
  • Total 400m subs, 35% market share, 41% rev market share
  • Name & brands TBA
  • Aditya Birla to appoint chair (Kumar Mangalam Birla), Vodafone to appoint CFO, both to appoint CEO & COO
  • Break-up fee INR 33b = $500m
  • To sell tower assets & Idea's 11.15% Indus stake, Vodafone to sell Indus stake
  • Vodafone to deconsolidate Vodafone India immediately (reduces net debt INR 552b = $8.2b; reduces leverage by 0.3 points)
  • Vodafone guidance 2016/17 (incl India) unchanged, thereafter to exclude India.

What is left of Vodafone Group?
  • Stake (45.1%) in Vodafone/Idea India (listed).
  • Stake in 50/50 joint venture VodafoneZiggo in the Netherlands (with Liberty Global).
  • Stake in 50/50 joint venture VHA Australia (with Hutchison).
  • Stake (65%) in Vodacom in Africa (listed).
  • Stake (40%) in Kenya's Safaricom (listed)
  • Core Europe markets, wholly owned: UK (in merger talks with Liberty Global), Germany, Italy, Spain.
  • Other European markets, wholly owned: Ireland, Portugal, Greece, Romania, CR, Hungary, Albania, Malta
  • Non-European units: Turkey, Egypt, Qatar, Ghana.
  • 49 Partner Market Agreements.
  • MVNOs (Brazil, Chile).
The case for further Liberty Global mergers is still clear, esp. in markets with overlap (UK, Germany, Ireland, Romania, CR, Hungary). But there are other, local candidates. At the same time, global presence (in IoT and via PMAs) is crucial to Vodafone's ambitions. Still, it is unclear how the Group wants to manage its portfolio, which markets are core markets, and which are to be wholly owned - if any.

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