Saturday, 10 December 2016

Telecoms M&A on the up and Vodafone still on the table - analyst

By Mary Lennighan, Total Telecom
Friday 28 February 14

Goldman Sachs analyst predicts a number of companies could look to build scale by buying Vodafone as likelihood of out-of-market consolidation grows.

There will be more mergers and acquisitions in the telecoms space in the coming months and years, with in-market consolidation, fixed-mobile convergence, and inter-country and inter-industry tie-ups all playing a part, one financial analyst predicted in Barcelona this week. And there is one telco on everyone's lips as both a likely buyer and an acquisition target: Vodafone. We haven't seen much of it of late…

There will be more mergers and acquisitions in the telecoms space in the coming months and years, with in-market consolidation, fixed-mobile convergence, and inter-country and inter-industry tie-ups all playing a part, one financial analyst predicted in Barcelona this week. And there is one telco on everyone's lips as both a likely buyer and an acquisition target: Vodafone.

We haven't seen much of it of late, but out-of-market M&A is becoming more likely, Goldman Sachs TMT analyst Tim Boddy said.

Vodafone is "an asset many would consider to be in play," he said.

The mobile group has no single controlling shareholder and is based in a market that is generally favourable to consolidation, he explained.

"There are a number of people who could look to get that scale benefit," he said.

AT&T is one obvious candidate to make a move for Vodafone, and a tie-up between the two of them would go some way to redressing the balance in the mobile industry, which is served on a global basis by a highly concentrated ecosystem of suppliers: Apple and Samsung in the smartphone space and Apple and Google on the OS side.

Vodafone and AT&T together spend the equivalent of about 20% of Apple's revenue on smartphones each year, Boddy noted.

AT&T in January made a formal statement to say it is not planning to table an offer for Vodafone, which under U.K. takeover rules means it is barred from making any such offer for six months. However, that ban becomes null and void should any other company submit a bid for Voda.

In-market consolidation is perhaps more likely though.

"2014 is already off to a fantastic start," with deals including Comcast's $45.2 billion agreement for Time Warner Cable and Liberty Global's €10 billion Ziggo buy, said Boddy. In the coming years, "M&A volumes are going to accelerate further," he predicted.

"We think there's going to be significant consolidation," as smaller operators seek out ways to become more competitive.

Boddy highlighted "Brazil in particular," where consolidation would be "beneficial to industry growth and profitability."

There has been much talk of further consolidation in the U.S. of late, but Boddy believes "the U.S. might have to wait until the next administration."

The move towards offering converged services will also drive telcos to make deals. Vodafone last year spent €7.7 billion on Kabel Deutschland and is reportedly looking at Ono in Spain, while there was increased speculation this week over a possible tie-up between French mobile operator SFR and cabelco Numericable.

"Mobile companies will have to sell fixed services to compete," said Boddy. Furthermore, with fixed and cable operators increasingly launching mobile offers of their own, this kind of deal enables mobile operators to take out a potential new competitor.

There is also the possibility of telecoms operators making deals with players in adjacent industries, although the fear of negative reactions from investors might stand in the way of such agreements.

"You'd see some pressure on the stock value," Boddy warned the telcos in the room.

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