Vodafone Group Plc (“Vodafone”) has announced that it has entered into a strategic co-control partnership with a consortium of long-term infrastructure investors led by Global Infrastructure Partners (“GIP”) and KKR (together the “Consortium”) for Vodafone’s 81.7% stake in Vantage Towers AG (“Vantage Towers”).
Vodafone and the Consortium have created a joint venture (the “JV”) which will hold Vodafone’s 81.7% stake in Vantage Towers. Vodafone will contribute its shares in Vantage Towers into the JV by way of a capital increase against new JV shares. The Consortium will obtain a shareholding in the JV of up to 50% by acquiring JV shares from Vodafone for cash.
In parallel with this announcement, the JV has announced today that it will make a voluntary takeover offer (“VTO”) for the outstanding Vantage Towers shares held by minority shareholders pursuant to Section 10 of the German Securities Acquisition and Takeover Act. Completion of the VTO will be conditional on customary conditions, including obtaining regulatory clearances for the partnership between Vodafone and the Consortium. The full terms and conditions of the VTO will be set out in a separate offer document to be approved by the German Federal Financial Supervisory Authority (BaFin). Following approval by BaFin, the offer document will be published and the acceptance period for the VTO will commence. The offer document (once available) and other information pertaining to the VTO will be made available on the following website: https://angebot.wpueg.de/oak/
The JV has received support from RRJ Capital in the form of an irrevocable undertaking to accept the VTO. RRJ Capital is Vantage Towers’ second largest minority shareholder and owns 2.4% of its ordinary share capital in issue (or 13% of the total minorities).
Nick Read, Vodafone Group Chief Executive said: “This is a landmark moment for both Vodafone and Vantage Towers. This transaction successfully delivers on Vodafone’s stated aims of retaining co-control over a strategically important asset, deconsolidating Vantage Towers from our balance sheet to ensure we can optimise its capital structure and generate substantial upfront cash proceeds for the Group to support our priority of deleveraging. We are excited to partner with GIP and KKR, both world-class investors who bring significant expertise in digital infrastructure and share our long-term vision for Vantage Towers as we collectively take the business to the next stage of its growth.”
Strategic co-control partnership
Vodafone and the Consortium share a joint ambition to accelerate growth and create further value at Vantage Towers. GIP and KKR both have extensive experience investing in and operating digital infrastructure companies. As long-term partners with an industrial mindset, Vodafone and the Consortium intend to enhance the business’ growth profile and profitability by supporting it in:
- Delivering an ambitious build-to-suit programme which enables mobile network operators to meet their coverage obligations and densification requirements;
- Capturing additional co-location opportunities from new and existing third-party customers;
- Pursuing meaningful growth opportunities in adjacent areas such as small cells and distributed antenna systems for 5G capacity expansion, as well as edge computing;
- Pursuing other growth-accretive investments, including actively participating in the consolidation of the European tower landscape; and
- Enhancing profitability through continuous operational improvements.
As a result of the transaction, Vodafone will deconsolidate Vantage Towers and equity account for its interest in the JV which will allow Vantage Towers to optimise its capital structure and help drive its pursuit of the above growth opportunities.
Summary valuation and financing
The transaction delivers an attractive valuation of €32.0 per Vantage Towers share to Vodafone as well as to minority shareholders through the VTO. This represents a 19% premium to the Vantage Towers 3 month volume-weighted average share price (“VWAP”) as of 8 November 2022 and 33% to the March 2021 initial public offering (“IPO”) price of €24.0 per share. The transaction values Vantage Towers at an equity value of €16.2 billion, implying an EV / adjusted EBITDAaL multiple of 26x for the 12 month period ended 31 March 20222. This represents a significant premium to trading multiples of publicly listed European tower companies and is in line with precedent transactions.
The Consortium has fully committed equity in place to obtain a shareholding in the JV of between 32% and 40%, depending on the level of take-up in the VTO by minority shareholders. The Consortium intends to raise additional equity before completion to reach a shareholding of 50%. The JV will fund the acquisition of Vantage Towers shares from minority shareholders in the VTO through €1.6 billion of incremental debt, which will be non-recourse to Vodafone, and equity from GIP and KKR. The table below summarises the range of potential outcomes depending on the level of take-up by minority investors in the VTO and additional Consortium investment.
| (€bn) | |||
| Minority take up | 0%1 | 100% | |
| Acquisition of minorities | 0.0 | (3.0) | |
| Additional JV debt (net of existing debt) | 1.6 | 1.6 | |
| Committed cash from Consortium | 4.7 | 4.7 | |
| Other4 | (0.3) | (0.2) | |
| Minimum net cash proceeds to Vodafone | 6.0 | 3.2 | |
| Implied Consortium JV shareholding (%) | 40% | 32% | |
| Net additional cash from Consortium4 | 1.1 | 2.6 | |
| Maximum net cash proceeds to Vodafone | 7.1 | 5.8 | |
| Implied Consortium JV shareholding (%) | 50% | 50% | |
Subject to the take-up in the VTO by minority shareholders and the resulting leverage of the JV, Vodafone may sell a proportion of its current Vantage Towers shareholding to the JV for cash and the Consortium may contribute cash to the JV in exchange for new JV shares. The minimum net cash proceeds to Vodafone will be €3.2 billion based on 100% take up in the VTO. The maximum total net cash proceeds to Vodafone based on a 50% shareholding for the Consortium will be between €5.8 billion and €7.1 billion1, depending on the take up in the VTO.
Should the Consortium own less than a 50% shareholding on 30 June 2023, Vodafone will have the right to sell JV shares to third party investors to reduce its own stake to 50%, outside of lock-up provisions and other restrictions.
DPLTA and squeeze-out intentions
The JV intends to implement a domination profit and loss transfer agreement (“DPLTA”) if the aggregate JV holding in Vantage Towers following the VTO is below 95%, or a squeeze out of minority shareholders if the aggregate JV holding in Vantage Towers is 95% or higher following the VTO.
Post-closing, Vodafone and the Consortium will consider removing Vantage Towers’ public listing from the Frankfurt Stock Exchange.
Dividend policy
Post-closing, the JV intends to pay annual dividends from excess free cashflow to the shareholders, subject to market and operating conditions.
Governance
Vodafone and the Consortium will have balanced governance rights in the JV, with equal voting rights. The current leadership team will continue to lead Vantage Towers to deliver the next phase of growth.
It is the intention of both Vodafone and the Consortium to build Vantage Towers’ success for the long term. As is customary for such partnerships, certain provisions have been agreed to give the shareholders strategic and financial flexibility. In particular, Vodafone and the Consortium have agreed to a lock-up period of 3 years post-closing of the transaction, after which each shareholder will be able to initiate a full or partial sale of its shareholding in the JV, subject to a right of first offer in favour of the other shareholder.
Impact on Vodafone
Vodafone will deconsolidate Vantage Towers and equity account for its interest in the JV from closing of the transaction. It is expected that the transaction will have a slightly dilutive effect on Vodafone’s adjusted earnings per share and free cash flow.
Sale proceeds are intended to be used for deleveraging and will reduce net debt/EBITDAaL by 0.2-0.5x3, in line with Vodafone’s medium-term ambition to reduce leverage to the bottom end of its 2.5-3.0x range.
As at 31 March 2022, Vantage Towers had gross assets of €10.5 billion. For the 12 months ended 31 March 2022, Vantage Towers generated profit before tax of €251 million.
Additional information
The transaction is subject to customary antitrust and FDI approvals and is expected to close in the first half of 2023.
Following Vodafone’s H1 FY23 results on 15 November, there will be a webcast Q&A session at 10am UKT for equity research analysts.
Transaction advisers
In connection with the transaction, Robey Warshaw and UBS are acting as financial advisers to Vodafone, and Linklaters is acting as legal adviser to Vodafone.
This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No 596/2014 as it forms part of domestic UK law as defined in the Market Abuse (Amendment) (EU Exit) Regulations (SI 2019/310).
