Vodafone Pounces on Liberty Cable Assets in €18.4B Deal

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On the mechanics of the deal, Vodafone said it would fund the takeover using a mixture of cash, new debt facilities and around €3 billion ($3.6 billion) in mandatory convertible bonds. This would increase Vodafone's net debt to between 2.8 and three times annual EBITDA, from a level of 2.1 previously, but Vodafone says the attractions of the deal outweigh any concerns about leverage.

At a fee of €18.4 billion ($21.8 billion), it is paying around 12.5 times operating free cash flow for the Liberty assets, a multiple that Colao described as "highly attractive."

Vodafone expects the merger of operations to lead to annual cost savings of €535 million ($634 million) by the fifth year following the deal's completion, which is expected to occur in mid-2019. It is also guiding for revenue "synergies" of about €1.5 billion ($1.8 billion) from cross-selling opportunities.

The cost saving targets will fuel concern about layoffs, with Vodafone indicating that it expects to make cuts in areas including network operations, IT, central services and marketing and advertising.

Vodafone has yet to report full-year figures for its fiscal year ending in March, but had a total of 111,556 employees on its books worldwide in March 2017. Liberty Global employed 26,700 workers at the end of last year, following the separation of its Latin American business, which had 10,300 employees in late 2017.

The combined figure of 37,000 employees is sharply down on the 41,000 staff members that Liberty flagged in late 2016.

Outside Germany, the takeover of Liberty's assets will "transform the mobile-centric position in eastern Europe," said Colao.

CCS Insight's Pescatore said the overall deal was "not game-changing" but underlined the need to have both fixed and mobile assets to succeed in "a rapidly converging world."

Besides allowing Vodafone to market packages of fixed and mobile services to its customers, and dissuade customers from defecting to rivals with similar capabilities, the acquisition of fixed-line assets may support Vodafone's 5G strategy in future. (See Europe's Backhaul Black Hole Looms Above 5G.)

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A next-generation mobile technology, 5G will deliver much higher-speed services to consumer and business customers but is likely to need ultra-fast broadband lines for the "backhaul" connections between basestations and core network systems. Fixed-line infrastructure might even be needed for so-called "fronthaul" links between radio sites and signal processing equipment.

Without its own fixed-line infrastructure, Vodafone is forced to rely on wholesale arrangements with Deutsche Telekom and other fixed-line operators in the region. In its presentation, Vodafone said that about €105 million ($124 million) of the projected cost savings would come from reduced wholesale payments on unbundled local loops and "bitstream" access.

Vodafone's share price was up 1.2% in London this morning on news of the deal with Liberty.

— Iain Morris, International Editor, Light Reading

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