LONDON (The Deal) -- The U.K.'s Vodafone Group (VOD) confirmed on Monday, March 17, it has agreed to pay 7.2 billion EUROS ($10 billion) for private equity-backed Grupo Corporativo Ono SA, the Spanish leader in high-speed broadband, as the buyer continues its transformation from a wireless services provider into an integrated communications company.
The deal comes after Vodafone CEO Vittorio Colao convinced Ono owners including Thomas H. Lee Partners, Providence Equity Partners, CCMP Capital and Quadrangle Capital Partners to sell it the business rather than list the company in an IPO after the British company raised its offer from a bid a source said last week most recently stood at 6.7 billion euros. It follows Vodafone's 7.7 billion euro takeover of almost 80% of Kabel Deutschland Holding AG in October and reflects the buyer's push to consolidate its position in its mainland European markets by adding new ways of reaching consumers. The takeover is Vodafone's first since the $130 billion sale of its 45% stake in Verizon Wireless to Verizon Communications closed in February.
"What we are really doing is optimizing our spending," CEO Colao told analysts. "At the end of the day it is about value creation and about long-term strategic consistency with our vision for the future. It is another step in the evolution of a mostly mobile Vodafone to a unified communications player."
Vodafone said the Ono acquisition will generate cost and capital expenditure synergies of 240 million euros by the fourth full year before integration costs, and deliver revenue benefits of 1 billion euros. The takeover will boost adjusted earnings per share from the first full year, the Newbury, England company added.
It is paying 7.5 times 2013 Ebitda for Ono, which serves 13 of Spain's 17 regions and whose high-speed network covers 7.2 million of Spain's 17.4 million households. It has 1.9 million customers. Ono's revenue in 2013 was 1.6 billion euros, which, when combined with the 4.3 billion euros in revenue Vodafone derived from Spain, will make the enlarged business Spain's second-largest integrated communications company behind Telefonica SA's Movistar, which had sales of 13 billion euros.
Colao said the deal included a 200 million antitrust-related break fee but that he didn't expect any competition issues.
The convergence of wireless services operators with cable companies has been gaining pace in recent years as companies seek to offer the full gamut of wireless and fixed-line telecoms, pay-TV and Internet and data services.
Last week, Vivendi SA entered exclusive talks with cable company Numericable SA about selling it its SFR wireless services unit, which is France's No. 2 operator, in a deal which values the business at about 14.6 billion euros.
In securing Ono, Vodafone is stealing a march over John Malone's Liberty Global Inc., which also approached Ono and was an unsuccessful bidder for Kabel Deutschland.
The transaction is also seen as making a bid for Vodafone by purported suitor AT&T Inc. less likely. AT&T said in January it had no current plans to bid for the British company but appeared to leave itself the option to act in the future.
Vodafone said it will finance the transaction from its existing cash resources and undrawn bank facilities, with the purchase taking its net debt to Ebitda ratio to just over 1.5 times, well below a 2 times ceiling that Vodafone CFO Andy Halford said it would be willing to breach temporarily if the right deal came along.
The four buyout firms with a controlling stake in Ono have all been investors in the Spanish company since at least 2005, when they participated in a 1 billion capital increase to help finance Ono's 2.25 billion purchase of the fixed-line and cable operations of Grupo Auna. Quadrangle's Ono investment dates back to 2003.
Shares in Vodafone were up 3.55 pence, or 1.6%. at 225.7 pence by late morning on Monday, valuing its equity at about £59.7 billion.
Morgan Stanley is advising Vodafone, whose board is also taking advice from Robertson Robey Associates LLP. UBS is Ono's financial adviser.