Vodafone would be open to selling off more non-core assets such as its interests in Australia, Hungary and the Czech Republic if it received the right offer, Reuters cited Chief Executive Vittorio Colao as saying.
Update: Group clarifies statement - 11:50
Vodafone Group has rejected reports about the potential sale of its Hungarian operation. It said it has no plans to divest its Hungarian interest, adding that such speculation is the result of a misunderstanding. Vodafone Group CEO Vittorio Colao was asked an investor conference on Wednesday it the company would sell certain units. Responding the question Colao only said that as a rule of thumb Vodafone is always open to modify its portfolio for the sake of its shareholders. The CEO spoke in general terms and had no intention whatsoever to suggest that the group has any specific plans of divestment regarding any of its markets.
Vodafone could exit Hungary
Colao did not rule out potential disposals of “peripheral" businesses - amid questions about whether it should sell smaller operations in Australia, Hungary and the Czech Republic - but said any deal would depend on whether there was a buyer willing to meet its price.
"We constantly check with possible parties interested in some of our less core assets," Reuters cited Colao as telling the annual Morgan Stanley Technology, Media and Telecoms Conference in Barcelona on Wednesday, in response to a question about the three markets.
"We would consider sales but we are not distressed sellers so therefore we must sell at full value. Otherwise we keep them and manage the cash."
The world's second-largest mobile operator by user numbers behind China Mobile, could also consider acquiring exclusive media content to attract customers as part of its move to become a full service telecoms provider. However, it is not convinced of the need for such expensive content rights yet.
The different options are being considered as Colao continues his drive to restructure the group from a sprawling pure-play mobile operator to a smaller firm that can also offer fixed line broadband and television services.
Vodafone plans to launch its own broadband and TV services in the UK next year, in part to counter the threat posed by BT’s impending move into the mobile market, The Financial Times reported.
It has not said whether it will provide a TV service using content from other groups - as it already does in mobile partnerships with Netflix and Sky - or look to add its own exclusive content, it added.
It would make sense
Vodafone Hungary has been reporting ever smaller revenues over the last few years. It also has been incurring losses, even on operating level (!), which could be a solid argument why this operation should be sold.
The size of the Hungarian operation is negligible within the Vodafone empire, contributing merely 0.9% of group revenues. It is indeed a non-core asset within the group.
Vodafone’s market share has been virtually stagnating on the Hungarian mobile market. It is currently around 22%.
Vodafone Hungary is subject to an extra burden, the telecom tax, yet another argument in favour of exiting the country.
There are solid arguments for leaving Hungary
We could find more than one reason why Vodafone would want to exit Hungary. Over the last few years the local operation has reported ever smaller revenues; it has been making losses and in terms of the total number of subscriptions it has failed to boost its market share. Additionally, the size of this unit is negligible compared to the hulk of the group therefore it is definitely a non-core asset.
Who could be the buyer?
It is hard to imagine that competition authority GVH would green-light Vodafone Hungary to be taken over by any of the large rivals, such as Magyar Telekom or Telenor. A smaller strategic investor, however, such as DIGI, which has recently obtained local frequencies, might be a viable option.
The state might also acquire the mobile carrier. There has already been speculation in this respect. The last time local news portal Origo.hu reported that several sources confirmed the state’s interest in buying Vodafone Hungary and many within the company itself were of the view that this was a done deal.
Vodafone Hungary has been the mobile service provider for government institutions since the beginning of 2014. The framework agreement signed early this year covers several tens of thousands of subscriptions and several hundred institutions, including ministries, government offices, law enforcement agencies, such as the National Police Headquarters, the National Disaster Management Directorate-General or authorities, including the National Tax and Customs Office (NAV) and the Hungarian Competition Authority (GVH), as well as other institutions such as the National Ambulance Services.
The government had planned before to obtain a position some way on the local telecom sector, but the establishment of the fourth mobile carrier MPVI was a nasty fiasco. It is possible that the government will give another shot at reshuffling the local telecom sector by acquiring Vodafone’s local operation.
How much could Vodafone Hungar be worth?
The valuation of regional telcos is typically around 4.5-5.5 EV/EBIDTA. Based on this and Vodafone Hungary’s 2013 EBITDA, the company is valued at HUF 84-102 billion. The question is whether the multiples we use meet the “full value" category Vodafone Group CEO mentioned.
In view of the telecom deals of the past few months the company could be sold at a much higher price. This March Vodafone acquired Spain’s Ono at 7.5x EV/EBIDTA, although that company has much better growth outlook and higher-quality assets than Vodafone Hungary.
A source close to the government estimated to local news portal hvg.hu last year that the state would need to pay EUR 200 million, i.e. about HUF 60 bn for Vodafone Hungary.
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