Vodafone Group Plc (VOD), the worlds second-largest wireless carrier, agreed to buy Spanish cable operator Grupo Corporativo Ono SA for 7.2 billion euros ($10 billion), including debt, to boost TV and broadband offerings.
The purchase gives Vodafone 1.9 million customers in Spain, complementing its mobile service and helping it challenge Telefonica SA (TEF) and Orange SA. (ORA) The deal will generate savings of about 2 billion euros and potential revenue addition of 1 billion euros, Newbury, England-based Vodafone said today.
Vodafone, which bought Germanys Kabel Deutschland Holding AG last year, is adding landline services to compensate for declining wireless revenue. The deal is part of Vodafone's strategy to build a Europe-wide operation to seek growth and savings, said Robin Bienenstock, a Sanford C. Bernstein analyst.
"Its the start of a whole new set of M&A stories, pan-European," London-based Bienenstock said. "You start to see cross-border stuff."
Vodafone shares rose 0.9 percent to 224.20 pence at 8:16 a.m. in London, giving it a market value of 59 billion pounds ($98 billion). The stock lost 2 percent in the past 12 months.
Vodafone will finance the deal, which preempts a planned initial public offering approved by Onos investors last week, with cash and undrawn bank facilities. Ono shareholders include private-equity firms Providence Equity Partners, CCMP Capital Advisors LLC, Thomas H. Lee Partners and Quadrangle Capital Partners. The four together hold about 54.4 percent of Ono.
As Europe's cable assets become more attractive, Numericable SA of France last week won a bid to combine with Vivendi SAs SFR mobile-phone unit, beating a rival offer from Bouygues SA, which owns a wireless carrier.
Vodafone Chief Executive Officer Vittorio Colao wants the company to become a hub for customers to access data and content across landline and wireless technologies. He's pledged billions of dollars to reinforce its network and add services.
The deal must be signed off by regulators, although the companies don't anticipate antitrust concerns to be an obstacle, a person familiar with the matter said.
The deal values Ono at 7.5 times last years earnings before interest, taxes, depreciation and amortization, when adjusted for savings, Vodafone said. Sales were 1.6 billion euros in 2013. Ono added 9,000 Internet customers and 183,000 mobile subscriptions in the fourth quarter while it lost 17,000 TV customers.
"The price is at the absolute top end of what you can justify," Bienenstock said.
Morgan Stanley advised Vodafone, and Robertson Robey Associates LLP assisted its board.
To win Ono, Colao had to convince the company's private-equity investors that he could offer them a better deal than the IPO, without overpaying. The share sale was expected to fetch 7 billion euros to 8 billion euros, people familiar with the matter have said.
Vodafone had raised its offer to about 7 billion euros from about 6 billion euros on March 5, people familiar with the negotiations said.
"We are clearly interested in broadband in Spain; we are clearly interested in offering our own solutions," Colao told reporters in Barcelona last month.
Vodafone bought Kabel Deutschland for more than $10 billion and is working on integrating the German cable operator. After a $130 billion sale of Vodafone's stake in U.S. mobile company Verizon Wireless, Colao has said that he has $30 billion to $40 billion in "spending power," and Vodafone has committed to 19 billion pounds in network spending in the next two years.
The purchase of Ono could lead to further deals in the Spanish market. Orange of France has intensified its search for acquisition targets in Spain to avoid being left out of consolidation, people familiar with the matter said last month. Frances biggest carrier is discussing its options with investment banks, with possible targets including Jazztel Plc and TeliaSonera AB's Yoigo unit, they said at the time.
This article originally published at Bloomberg here
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