Vodafone strikes European M&A deal – but maybe not the one you were expecting

  • Vodafone has been plotting a revamp of its European portfolio
  • It has been involved in M&A talks and skirmishes in multiple major markets
  • Now it has struck a deal to offload one of its European operations for €1.8bn
  • But an agreement to sell Vodafone Hungary is not quite what the market was expecting
  • Attention will now be even greater on M&A activity in Spain, the UK and other key markets

Vodafone announced the sale of one of its European operations early Monday morning, but the news that it is Vodafone Hungary that is being offloaded for €1.8bn might come as something of a surprise to many market watchers and still leaves lots of questions unanswered about what is happening in Italy, Spain, the UK and Portugal, the countries previously identified by the operator’s CEO as ripe for M&A action.

Vodafone Hungary, the second largest operator in the country in terms of total customers (mobile and fixed) after Deutsche Telekom’s Magyar Telekom, is set to be acquired jointly by the 4iG Group – the country’s leading IT systems integrator and regional communications service provider that already has fixed line operations in the country – and the Hungarian state (via holding company Corvinus) for 715bn forints (HUF) (€1.8bn). The parties have reached an initial and detailed agreement, but it is not yet binding and requires regulatory approval, but this looks to all intents and purposes like a done deal. 

Vodafone Hungary, one of the telco giant’s smaller operations, has 3 million mobile customers – a number that has been in slow decline during the past couple of years – and about 740,000 fixed broadband customers (most of which also take cable TV services and the majority of which take fixed voice services. The operation generated revenues of HUF278bn (€684m) in the full financial year that ended in March 2022 and reported adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of HUF93bn (€229m). 

Combined with 4iG’s existing 1.2 million fixed line customers that came from the acquisition earlier this year of Digi Hungary, the resulting operation would have about 5 million customers, enough to satisfy the Hungarian government’s ambition to have a major communications service provider that is locally owned. (The agreement does not, though, include the Hungarian branch of Vodafone Intelligent Solutions (VOIS), which provides a range of services to the Vodafone Group operations and which is a key part of the company’s efforts to develop efficient, shared support operations.) 

4iG noted the deal, which is expected to close before the end of this year, “represents a significant further step in [4iG] becoming the Hungarian owned national champion in the ICT sector.”   

Gellért Jászai, chairman and CEO of 4iG, noted: “The acquisition will create a predominantly Hungarian-owned group of infocommunications companies and a clear number two operator in the Hungarian market. Following the successful completion of the acquisition, our Group will have one of the largest digital infrastructures in Hungary, which, due to its prominent role, will become a significant player in Hungarian telecommunications for many decades to come.”

So the Hungarian government, presided over by its controversial and authoritarian right-wing nationalist prime minister Viktor Orbán, gets its home-owned champion and 4iG gets more scale to compete with Magyar Telekom and the country’s other significant mobile service provider, private equity-owned Yettel (formerly Telenor Hungary), which is the second largest mobile operator in the country with about 3.6 million customers. 

But what about Vodafone? Well, investors appear to be underwhelmed, as the operator’s share price is down about 1% to 121 pence on the London Stock Exchange, and that perhaps in part reflects the fact that while a deal has been struck, it’s not an M&A move that is going to help transform the company in a way that the management has been discussing and for which certain activist investors have been pushing.  

During a number of presentations to investors and analysts, Vodafone CEO Nick Read has communicated the company’s intention to engage in various types of deals that would change the size and nature of the company, including “in-market” consolidation moves. The deal in Hungary certainly falls into that category, but Read had identified Italy, Spain, Portugal and the UK as the priority markets for such deals and noted in May that discussions in multiple markets were underway – see Vodafone still embroiled in multiple M&A discussion and Vodafone plots major M&A moves in Europe, confirms CEO.

But it’s clear that things haven’t gone smoothly or as planned: In Spain it lost out to Orange in the race to strike a merger deal with MásMóvil; and in Italy it spurned a takeover offer from Iliad and Apax Partners 

The CEO has always been careful to note that there isn’t a deadline to strike any deals and that he won’t agree to anything that doesn’t make financial sense (hence the dismissal of the offer in Italy) – transition through M&A is an ongoing process, isn’t new and will always be under consideration, Read has stressed on a number of occasions. 

But if the perception grows that Vodafone seems unable to strengthen its position in key markets such as Spain, Italy and the UK, where it has long been linked to a potential merger with Three UK, then external pressure from the likes of activist investor Cevian Capital, which took a stake early this year and agitated for accelerated action, might grow. Read will have been comforted by words of support for his strategy and approach from e&, the Middle Eastern operator (formerly known as Etisalat Group) that acquired a 9.8% stake in Vodafone Group in May, but such support isn’t guaranteed to last forever. 

- Ray Le Maistre, Editorial Director, TelecomTV

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