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Vodafone lies low on T-Mobile UK interest
|30 июня 2009|
Vodafone was trying to lie low on Monday night, refusing to comment on its interest in T-Mobile UK.
The Financial Times revealed on Monday that the world’s largest mobile phone operator by revenue was considering making an offer to buy T-Mobile UK, which has an estimated enterprise value of €3bn-€4bn (£2.6bn-£3.4bn). It is owned by Deutsche Telekom, Germany’s leading telecoms company.
Some analysts highlighted the large potential synergies resulting from a tie-up between Vodafone’s British business and T-Mobile UK.
Terence Sinclair, analyst at Citi, Vodafone’s broker, said the annual earnings of the combined entity could be £200m-£300m higher than the two units on a standalone basis in three to five years.
The new entity would have to run only one mobile network instead of two, for example, so Vodafone could aim to secure significant savings in capital and operating expenditure.
Yet consolidation could bring broader benefits that go not just to Vodafone but to all the remaining UK mobile operators.
Britain is the only major European country with five network operators, and they all say fierce competition hurts their profit margins.
If five operators became four through consolidation, it could ease pricing pressure and boost margins. Mr Sinclair said consolidation could increase all operators’ revenue by 5 per cent within three years, and raise margins by up to 5 percentage points.
But if consolidation offers such attractive prospects, why hasn’t it happened?
The risk for any purchaser of T-Mobile UK is that it pays a large sum for the business – and then sees all the advantages go to rivals.
In a worst-case scenario, Vodafone could buy T-Mobile and then make a botched job of the integration. The British company could struggle to secure synergies, and lose T-Mobile’s customers to rivals. However, Vodafone’s rivals could still get the benefits of higher margins following consolidation.
This dangerous possibility, perhaps more than anything else, has held back consolidation in the UK market.
But Vodafone’s interest in T-Mobile suggests things might be changing. Vittorio Colao, Vodafone’s chief executive since July last year, used a strategy presentation in November to say that the company was for the first time willing to play an active role in consolidation.
Goldman Sachs is advising Vodafone on the case for making an offer for T-Mobile UK.
Meanwhile, JPMorgan is advising Deutsche Telekom on the strategic options for its UK business, which has been underperforming for several years. Deutsche Telekom declined to comment.
If Vodafone bought T-Mobile, it would be catapulted to clear market leadership in the UK, with a 40 per cent share of revenue paid by British mobile phone users.
Currently O2 is the largest UK mobile operator. It is owned by Spain’s Telefónica and has a 27 per cent market share.
Vodafone has 25 per cent, France Telecom’s Orange 22 per cent, and T-Mobile 15 per cent. 3, the operator owned by Hong Kong’s Hutchison Whampoa, has 8 per cent.
The possibility of Vodafone acquiring T-Mobile is prompting O2 to review all its options.
O2 declined to comment, but people familiar with the situation did not rule out the operator considering the case for making an offer for T-Mobile.
France Telecom also declined to comment. It has been at pains over the past two months to quash speculation that it could buy T-Mobile. A tie-up between Vodafone’s British business and T-Mobile UK would be likely to face scrutiny by the European Commission or the Office of Fair Trading, but analysts and lawyers said a deal would not necessarily be blocked. In France, Italy and Spain, the leading mobile operators each have a market share of about 40 per cent.
James Barford, analyst at Enders Analysis, said regulators might seek remedies such as requiring Vodafone to relinquish T-Mobile UK’s wholesale contract with Virgin Media. The cable TV operator uses T-Mobile’s network to provide mobile services to 4m customers.
Regulators would have to examine the pros and cons for consumers from a tie-up between Vodafone’s British business and T-Mobile UK.
One issue would be the possibility that consolidation could result in higher mobile tariffs for consumers. But another issue would be whether consolidation, if it boosted operators’ margins, would assist investment in networks.
The government, with its Digital Britain initiative, is hoping that mobile operators can play an important role in providing high-speed internet access in the next five years, but it is dependent on investment in more sophisticated networks.
Jenny Block, competition lawyer at Simmons and Simmons, said of Vodafone’s interest in T-Mobile UK: “This would be a complex and challenging combination and likely to prompt a detailed investigation by the competition authorities. However, it may be going too far to say that it would be automatically be blocked.”
With such intense interest in how consolidation could change the shape of the UK mobile market, Vodafone’s efforts at lying low look unlikely to be long-lived.
Less is more
Vodafone’s interest in T-Mobile UK is the latest example of how the British company’s deal-making strategy is changing.
Vittorio Colao, Vodafone’s chief executive since July last year, has signalled he is less focused on ambitious acquisitions than his predecessors were.
Sir Christopher Gent and Arun Sarin staked their reputations on blockbuster transactions such as the former’s £101bn deal to buy Germany’s Mannesmann in 2000 and the latter’s $11bn purchase of India’s Hutchison Essar in 2007.
Mr Colao is instead focused on trying to improve Vodafone’s existing businesses, particularly in markets where it is underperforming, such as the UK.
On deal making, Mr Colao said last November he was willing to consider transactions that would facilitate consolidation between mobile operators in particular markets.
Mr Colao added any large piece of deal making would likely have to be offset by a disposal.
Vodafone reported net debt of £34.2bn at March 31, compared with £25.2bn one year ago.
UBS analysts estimate Vodafone’s 2010 net debt to be 2.3 times its earnings before interest, tax, depreciation and amortisation, compared to an industry average of 1.9.
Standard and Poor’s has Vodafone’s long term rating at A minus. But last week S&P revised Vodafone’s outlook from stable to negative, because of likely weaker growth in free cash flow.
It said: “The outlook revision factors in that Vodafone has limited ratings headroom for mergers and acquisitions not fully offset by mitigating actions.”
Источник: Financial Times