The Good And Not-So-Good News For Vodafone Group plc Shareholders

What does Vodafone Group plc’s (LON:VOD) acquisition of Ono mean?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The acquisition of Spanish cable company Ono is another step forward in the unified communications strategy that should underpin Vodafone‘s (LSE: VOD) (NASDAQ: VOD.US) future in the European telecoms sector.  But there’s a sting in the tail that could make its shares volatile in the near-term: a buying opportunity for some, or a test of nerves for long-term holders.

The fit

Ono, a leading broadband and pay-TV service in Spain, fits perfectly with Vodafone’s new strategy which is focused on being able to offer ‘quad play’ bundles of mobile, fixed-line telephone, TV and broadband to consumers. Analogous convergence of mobile and fixed line products is taking place in the enterprise market, too.

vodafoneVodafone said it would ‘build, borrow or buy’ the necessary fixed-line infrastructure. Buying Ono delivers the network in Spain, whilst additionally presenting the opportunity to turn around Vodafone’s ailing Spanish business by cross-selling the two companies’ customer bases. That Ono was on the cusp of floating should indicate that prospects in the Spanish market are looking up, though that’s certainly not guaranteed.

The price

Some feel Vodafone over-paid, but the €7.2bn (£6bn) price-tag doesn’t imply a huge control premium for the business that was expected to float at €6-6.5bn. The heady-looking enterprise value: EBITDA multiple of 10.5 comes down to 7.5 when anticipated cost synergies are built in. Kabel Deutschland’s private equity sellers rejected Vodafone’s offer in favour of floating it – and it cost Vodafone much more to eventually make a public offer.

More generally, the acquisition signals that Vodafone is up and running with the implementation of its new strategy. What sounds good on paper will only come to fruition when the fixed-line network is ‘built, borrowed or bought’ across the continent. That begs the question of what Vodafone will do in the UK.

Vodafone has a lot on its plate, and the integration of Kabel Deutschland is about to commence too. But it proved with Cable and Wireless that it can accomplish that painlessly.

The catch

Buying Ono makes a bid from AT&T that much less likely. The US wireless operator seemingly isn’t interested in fixed-line: its European play would be to generate savings from trans-continental wireless operations. The strength of sterling, intensifying competition in its home market, and weakness in AT&T’s own shares have also made a potential bid more problematic.

But there’s still some bid premium in Vodafone’s shares. As that seeps away, and the implementation risks inherent in Vodafone’s transformation attract more attention, its shares could be volatile. That shouldn’t undermine the long-term rationale for long-term shareholders, but it might require some nerve.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Tony owns shares in Vodafone but no other shares mentioned in this article.

 

More on Investing Articles

Young black man looking at phone while on the London Overground
Investing Articles

1 delicious penny stock I reckon can deliver juicy returns and growth

This food delivery penny stock has experienced a surge in performance and uptake recently. Our writer is excited by its…

Read more »

Investing Articles

If I’d bought Rolls-Royce shares the day Tufan Erginbilgiç joined here’s what I’d have now

Harvey Jones is startled by just how fast the Rolls-Royce share price has risen since its transformative CEO took over.…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

How much do I need to invest in Lloyds shares to earn income of £1,000 a year?

Harvey Jones is getting income and growth from his Lloyds shares but wished he'd bought more of them. So he's…

Read more »

Illustration of flames over a black background
Investing Articles

Down 75%! Will the Saga share price ever be loved again?

The last few years have been incredibly difficult for those watching the Saga share price. But what does the future…

Read more »

Investing Articles

What kind of return could I expect by investing £100 monthly in a Stocks and Shares ISA?

Using a Stocks and Shares ISA to avoid capital gains tax could grow a £100 monthly investment into a second…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Can strong operational momentum keep the Informa share price rising?

FTSE 100 company Informa has been performing well, but this may be just the beginning of a multi-year trend for…

Read more »

Market Movers

What’s going on with the Britvic share price?

Jon Smith flags up why Britvic's share price is surging on Friday, but believes that the company is in a…

Read more »

Cheerful young businesspeople with laptop working in office
Dividend Shares

2 super-cheap passive income shares I’m eyeing up right now

Jon Smith discusses two of his favourite passive income shares in the banking and property sectors, both featuring yields above…

Read more »