Vodafone Group plc
), the world's second largest wireless carrier in terms of
subscribers, has reached a deal to buy Madrid-based Ono for €7.2
billion (approximately $10 billion). If gets regulatory
clearance, it will mark Vodafone's second Internet and TV asset
acquisition in Europe as the company looks to strengthen its
other segments in a bid to counter dwindling mobile revenues.
Ono, which is majorly owned by private equity partners, has
1.9 million customers in Spain covering 70% of the population and
can offer broadband speeds of upto 200 MB/sec. With such a
high-speed offering, the deal will allow the telecom behemoth to
) dominance in the Spanish market. Vodafone expects to finance
the transaction through internal cash reserves and undrawn bank
Synergies from the deal will not only help Vodafone acquire
customers, but will also enhance its market share. Further,
Vodafone will be able to generate around €1 billion ($1.39
billion) in revenues by cross selling its product to Ono
Notably, Vodafone acquired a 76.48% stake in Kabel Deutschland
for €7.7 billion (around $10.21 billion) in Sep 2013, and settled
on a domination agreement requiring payment of €84.53 per share
to the remaining shareholders. The company also struck a
wholesale agreement with Deutsche Telecom for offering high-speed
fixed-line broadband and Internet Protocol-based TV services
Moreover, in the same month, Vodafone reached an agreement
with Verizon to sell its 45% interest in
Verizon Wireless Communications Inc.
) for $130 billion. The company closed the deal on Feb 21, 2014.
In Sep 2013, the company also announced plans to buy Verizon's
stake (of around 23.14%) in Vodafone Italia, for $3.5
In Spain, the company is gaining from its tie-up with
) and has also entered into a vertical access agreement with
Telefonica for accessing the fiber optic network. The Ono deal
will save Vodafone's expansion cost along with reducing line
renting from Telefonica.
However, we remain concerned about the heavy multiple that the
British incumbent is paying to acquire Ono. Further, with rival
Orange looking to snap up Spain's fourth biggest telecom operator
Jazztel, the nation's telecom market is likely to become more
competitive going forward.
Vodafone currently carries a Zacks Rank #5 (Strong Sell).
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