Vodafone Group Plc (ADR) (VOD) Raises Offer For Ono?

Vodafone Group Plc (ADR) (VOD) Raises Offer For Ono?
By Kj1595 (Own work) [CC BY-SA 4.0 or Public domain], via Wikimedia Commons

Vodafone Group Plc (ADR) (NASDAQ:VOD) (LON:VOD) reportedly raised its offer for Ono, but AT&T is also rumored to be waiting in the wings.

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Vodafone raises offer for Ono

The weekend press (eg Daily Telegraph, 8 March) is reporting that Vodafone Group Plc (ADR) (NASDAQ:VOD) (LON:VOD) has raised its offer for Ono and was proceeding with due diligence over the weekend with a view to putting a binding offer in front of the Ono board this week. Ono is the largest Spanish cable company with around 40% of homes built past and 24% household penetration – see our report Spanish Cable Synergy Analysis, 12 Feb 2014. The companies in question have not commented on the reports.

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Vodafone Group Plc (ADR) (NASDAQ:VOD) (LON:VOD)’s last offer was put by press reports at around €7bn at the time, although some press articles now put it at €6.5bn, while the new offer was put at “over €7bn” by the Financial Times (7 March).

Randall Stephenson investing in European wireless

The FT (7 March) also reported comments from AT&T Inc. (NYSE:T)’s CEO Randall Stephenson at a conference last week, where he said that the window of opportunity to invest in European wireless may be closing as investment in LTE by the local carriers picks up. We see this as a possible attempt to dampen down speculation about a potential offer for Vodafone. We still believe that AT&T is interested and view an acquisition scenario as a route to potentially improve its dividend cover by FCF after investment projects VIP (AT&T’s) and Spring (Vodafone’s) are completed and the companies realise some modest deal-related synergies, which we put at up to 10% of earnings including tax in our report “Barbarians At The Gate”, 12 Nov 2013.

Ono deal not large enough to make an impact

We do not see any Ono deal as a large enough to put AT&T Inc. (NYSE:T) off looking at Vodafone Group Plc (ADR) (NASDAQ:VOD) (LON:VOD), although note that Mr Stephenson has previously cited a preference for a mobile-only approach in Europe. As a reminder, an offer for Ono of €7bn enterprise value would equate to 9.8x Ono’s last 12 months reported EBITDA of €716m (to Sep 2013). Based on Vodafone’s target for operating cost and capex savings of over €300m pa in KDG’s case, we estimate it might be able to achieve €120-130m pa equivalent savings from combining Vodafone Spain with Ono’s cable assets and another €60m pa from bringing Ono’s MVNO on net. Applying an estimated NPV of the cable synergies of €1.25bn (ignoring revenue synergy) would reduce the trailing 12-month EBITDA multiple to 8.0x and including the MVNO savings brings it closer to 7x.

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