Lighter-touch regulation has led to a string of takeovers, mergers and strategic investments
Thursday 19 May 2022 Author: Steven Frazer

The European telecoms sector has burst into life after years of restrictive regulations and poor investment returns.

Last year saw the merger of Spanish rivals Euskaltel and Masmovil, and more recently private equity firm KKR tried and failed to buy Telecom Italia. Now, BT (BT.) has confirmed a TV partnership for its sports content with Warner Bros Discovery, receiving an initial £93 million which increases to circa £540 million, subject to undisclosed conditions being met.

BT and Warner Bros Discovery will combine to create a new premium sport offering with broadcast rights, including the UEFA Champions League and Premier League football, Premiership Rugby and the Olympic Games, among others.

Meanwhile, Vodafone (VOD) is believed to be continuing to push hard for a buyout of UK mobile network Three and is scouring Europe for other M&A opportunities.

Furthermore, United Arab Emirates-based telecoms group e& has acquired a 9.8% stake in Vodafone for £3.3 billion. This comes hot on the heels of activist investor Cevian Capital taking a stake to try to force the FTSE 100 company to refocus, return more cash to shareholders and bring more telecoms experience onto the board.

Investors are hoping that mergers and takeovers might spice things up for Vodafone after it reported resilient but uninspiring 5% underlying EBITDA (earnings before interest, tax, depreciation and amortisation), excluding business leases, and 4% revenue expansion for the year to 31 March 2022.

‘The bigger UK picture is M&A, with the company now linked to both Three UK (the only practicable UK mobile consolidation option in our view – which might help Vodafone UK’s soggy margins) and TalkTalk,’ says Megabuyte analyst Philip Carse.

So far, Vodafone’s strategic rethink has included spinning off mobile masts business Vantage Towers (VTWR:ETR) as a standalone business, refocusing the portfolio through a range of disposals and mergers, and positioning the company for ever-greater consumption of data.

The infrastructure sector has become hot property in recent years as investors have realised its role in the provision of essential services and the long-term potential for strong cash generation as 5G services roll out. Reports in March suggested Vodafone had been approached by global infrastructure funds with offers of up to $16 billion for a majority stake in Vantage Towers.

Jefferies analyst Jerry Dellis remains sceptical that further reducing its current 81% stake in Vantage Towers would release substantial value for investors. ‘Selling down to a non-controlling stake would reduce leverage and fund a buyback,’ the analyst says, albeit saying it is less clear how this would create long-term value for shareholders.

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