Vodafone is selling its 44 percent stake in French operator SFR for EUR 8 billion (GBP 7 billion) to Vivendi. SFR will remain a Vodafone partner in the French market. The majority of the proceeds from the sale (EUR 4.5 billion) will go towards additional share repurchases, and the rest for debt reduction.
Earlier reports suggested that Vodafone wanted at least GBP 8 billion for the stake, but it has now settled for less. Its share price reacted positively to the news (up 2%). Vodafone said the sale price gives a valuation of 6.7 times EBITDA for 2010. In a comparable situation, Mobistar (where France Telecom is regularly rumoured to be considering a buy-out of minority shareholders) is valued at 5.8 times, which would give Vodafone little to complain about. The price was also under pressure as there was only one natural buyer: Vivendi, which already owns the rest of SFR.
Vodafone is progressing nicely with its portfolio management. Its stake in Vodafone Essar is being increased (and a IPO under preparation) and its 25 percent stake in Polkomtel is also reportedly up for auction. The latter has plenty of candidates, such as TeliaSonera, would should be good for the price. Earlier reports suggested proceeds of around EUR 4 billion for the stake. The Value Creation Unit, set up last September to manage the most imprtant minority stakes (SFR, Polkomtel, Bharti Airtel (4%) and Verizon Wireless (45%)), is quickly wrapping up its tasks. The last stake is the really big fish (estimated at around GBP 23 billion), but a sale will prove difficult due to the likely capital gains tax.
The key question is whether Vodafone will now pursue acquisitions to expand its geographic reach. To start with it's giving the SFR proceeds to shareholders and debt reduction, but the company also has a long way to go in strengthening its position in its existing markets. This requires investments in mobile broadband (as recently announced in Italy, and the auction planned in the UK), in fixed services (especially TV), business services and retail (such as the recent deal in the Netherlands and possibly also in the UK). In short, it's more likley to focus on deepening its current activities than broadening its operations.
