By Matilda Oculy, Filip Stoilov and Deimante Chailenko (The University of Manchester), Pierre Six, Mathilde Heibig, Jingying Liu and Dorian Song (HEC Paris)
Photo: Kabiur Rahman Riyad (Unsplash)
Overview of the deal
Acquirer: Consortium led by KKR and GIP
Target: Vantage Towers (Vodafone)
Implied Equity Value: €32.00/share
Total Transaction Size: €3.2bn - €7.1bn
Closed date: H1 2023
Acquirer advisors: Morgan Stanley (financial), Latham & Watkins (legal)
Target advisors: Rothschild & Co (financial), Orrick Herrington & Sutcliffe (legal)
On November 9th 2022, Vodafone agreed to sell up to 50% of its shares to the Consortium led by KKR and GIP. The Consortium and Vodafone announced the creation of a Joint Venture in which Vodafone’s 81.7% stake in Vantage Towers will be transferred. The Consortium will at the beginning obtain a shareholding in the JV of between 32% and 40%, depending on the level controlled by minority shareholders. The JV, Oak BidCo, would then launch a public takeover offer for the 18.3% shares it does not already control, to eventually reach a shareholding of 50%.
It’s important to note KKR and GIC’s bid is being bankrolled by Saudi Arabia’s sovereign wealth fund (Saudi Arabia Public Investment Fund) - another deal in which the Gulf region has successfully gotten its foot in as the oil-rich region capitalises upon its eye-watering windfall from high energy prices. It’s a sign of the times: as rising interest rates make increasing leverage more expensive, financial sponsors are turning their attention to deep-pocketed Gulf investors to be able to provide the large equity infusions their deals need.
Company Details (Acquirer - KKR)
KKR is a leading global investment company which manages US$493B of assets ranging from infrastructure and energy to hedge funds and private equity. It operates worldwide in over 17 countries and has to-date carried out some of the largest leveraged buyout transactions.
Founded in 1976, headquartered in New York, USA
CEO: Joe Bae and Scott Nuttall
Number of employees: 3,200
Market Cap: $45bn (as of 27/11/2022)
EV: $51bn
LTM Revenue: $6.9bn
LTM EBITDA: $4.9bn
LTM EV/Revenue: 7.5x
LTM EV/EBITDA: 11.5x
Company Details (Target - Vantage Towers)
Founded in 2019 as a subsidiary of Vodafone, Vantage Towers is a leading European tower company, being well-established in the German, Italian and British markets. The firm has an infrastructure network of 83,000 towers across 10 countries and contributes to Europe’s digital transformation by being a 5G superhost.
Founded in 2019, headquartered in Düsseldorf, Germany
CEO: Vivek Badrinath
Number of employees: 327 (as of 31/03/2021)
Market Cap: $17.2bn (as of 27/11/2022)
EV: $21.6bn
LTM Revenue: $1.1bn
LTM EBITDA: $902mn
LTM EV/Revenue: 20.3x
LTM EV/EBITDA: 24.0x
Projections and Assumptions
Short-term consequences
The goal is to create an ideally positioned pan-European telecom group, driving a sustainable digitalization through technological innovation in decarbonization i.e., sustainable masts, using renewable energy sources generated on site.
Vodafone will be able to co-control a strategically important asset while de-consolidating Vantage Towers from their balance sheet in order to optimise their capital structure and generate substantial upfront cash to support their priority of deleveraging.
Vodafone, like their peers, must invest in the future generation networks, 5G which allows a higher quality and density of connectivity. “Vantage Towers’ high-quality footprint and network across the region ideally position it to meet the ever-growing demand for mobile connectivity in Europe “ said Vincent Policard, Co-Head of European Infrastructure at KKR.
Therefore, Vodafone, thanks to this agreement, will be able to focus on future investments in order to maintain its leading position as a telecom operator, as the deal frees up billions in capital to help reduce the company’s debt burden.
Perhaps more importantly for Vodafone’s CEO, Nick Read, the deal serves as a much-needed way to relieve activist pressure, at least for now, after Europe’s largest activist investor, Cevian, built an undisclosed position in the company over the past year, lobbying for a sale of Vodafone’s poorly performing units, and a significant shake-up of the sprawling international business.
Long-term Upsides
Together with strategic partners Vodafone and GIP, it is believed that Vantage Towers’ high-quality footprint and network across the region ideally position it to meet the ever-growing demand for mobile connectivity in Europe. They both have a shared goal of creating a pan-European telecoms champion by continuing to grow and develop the business, leveraging the Consortium’s significant telecoms infrastructure investment experience and global resources, as stated by Policard.
With this strategic co-control partnership, Vodafone and Consortium share a joint ambition to accelerate Vantage Towers' growth and value, supporting it in:
Delivering built-to-suit programme which enables mobile network operators to meet their coverage obligations and densification requirements
Pursuing growth opportunities in adjacent areas such as small cells and distributed antenna systems for 5G capacity expansion and edge computing
Pursuing growth-accretive investments, including a participation in the consolidation of the European tower landscape.
"We have a shared goal of creating a pan-European telecoms champion by continuing to grow and develop the business, leveraging the consortium's significant telecoms infrastructure investment experience and global resources," said Vincent Policard.
Risks and Uncertainties
As part of their strategic co-control partnership, the Consortium and Vodafone will launch a voluntary public takeover offer to the shareholders of Vantage Towers through Oak BidCo. Vantage Towers’ shareholders will be offered €32.00 per share in cash. Vantage Towers’ shareholders will benefit from a 19% premium to the 3-month volume-weighted average share price. The completion of the voluntary takeover will be conditional on customary conditions, including obtaining regulatory clearances for the partnership between Vodafone and the Consortium. The full terms and conditions of the VTO will be set out in a separate offer document to be approved by the German Federal Financial Supervisory Authority (BaFin).
Should the Consortium own less than a 50% shareholding on 30 June 2023, Vodafone will have the right to sell shares in the joint venture to third party investors to reduce its own stake to 50%, outside of lock-up provisions and other restrictions.
Vodafone will deconsolidate Vantage Towers and equity account for its interest in the JV from closing of the transaction. It is expected that the transaction will have a slightly dilutive effect on Vodafone’s adjusted earnings per share and free cash flow.
The transaction is subject to customary antitrust and FDI approvals and is expected to close in the first half of 2023.