Vodafone Group Plc has announced that it has entered into a strategic co-control partnership with a consortium led by Global Infrastructure Partners (GIP) and KKR for Vodafone’s 81.7% stake in Vantage Towers AG, a leading tower company in Europe with around 83 000 sites in ten countries.

Before we get into the thick of things, here’s some background on:

  • When and how was Vodacom formed?
  • How Vodafone got its hands on Vodacom?

Vodacom was incorporated in 1993 as a joint venture between Telkom (50%), Vodafone (35%) and VenFin (15%). This is how Vodafone got involved with Vodacom. 1993, Vodacom was awarded a mobile cellular telecoms licence in SA and launched commercial services in 1994.

In 1996, Vodafone and VenFin sold a 5% stake in Vodacom Group to a BEE company, Hosken Consolidated Investments for R118 million. In 2002, Hosken made a killing when it sold the 5% stake back to Vodafone and VenFin for R1.5 billion.

VenFin (then venture capital subsidiary of Rembrandt) looked around and realised that there is money to be made here. In 2006, VenFin wanted out of the joint venture. Telkom didn’t put up a fight. Vodafone had a clear landing strip. Vodafone bought Venfin’s 15% stake for ~R16bn.

As a result of Vodafone acquiring VenFin’s 15% stake, its shareholding in Vodacom grew to 50%. In 2008, Telkom sold 15% of its Vodacom stake to Vodafone for ~R22.5bn and distribute the remaining 35% to its shareholders through Vodacom’s JSE listing. Vodafone now owned 65%.

Vodafone became the parent company of Vodacom and Vodacom rebranded (changed colours). The R400 million was spent on the rebranding campaign split over two financial years. The separation of Absa Group from Barclays was more expensive. Barclays contributed R12.6bn in 2017 towards the 3 year separation.

November 2021,Vodacom announced that it is buying Vodafone’s 55% stake in Vodafone Egypt for R41bn. 80% of R41bn will be settled by issue of 242m new Vodacom shares at R135.75/share to Vodafone and 20% will be paid in cash of ~R8.2bn. Vodafone’s stake in Vodacom will increase 65.1%.

This transaction was won the 2021 Deal of the Year at the Dealmarkers awards.

***Overview of the strategic co-control partnership and creation of a joint venture with Global Infrastructure Partners (GIP) and KKR***

Vodafone and the consortium led by GIP and KKR have created a joint venture 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.

The JV also announced that it will make a voluntary takeover offer for the outstanding Vantage Towers shares held by minority shareholders.

The JV has received support from RRJ Capital in the form of an irrevocable undertaking to accept the voluntary takeover offer. 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).

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 voluntary takeover offer 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 voluntary takeover offer through €1.6 billion of incremental debt, which will be non-recourse to Vodafone, and equity from GIP and KKR. 

Subject to the take-up in the voluntary takeover offer 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 voluntary takeover offer. 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 billion , depending on the take up in the voluntary takeover offer.

The transaction values Vantage Towers at an equity value of €16.2 billion, implying an EV/adjusted EBITDA multiple of 26x for the 12 month period ended 31 March 2022.

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.

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. Continuity is key.

What will Vodafone use the proceeds for?

The sale proceeds are intended to be used for deleveraging and will reduce net debt/EBITDA by 0.2-0.5×3, in line with Vodafone’s medium-term ambition to reduce leverage to the bottom end of its 2.5-3.0x range. 

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. Deconsolidation from Vodafone’s balance sheet ensures Vantage Towers can optimise its capital structure.

Post-closing, Vodafone and the consortium will consider removing Vantage Towers’ public listing from the Frankfurt Stock Exchange.

You can read all about the ABSA and Barclays separation by clicking on this link.


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