Telecom deals continue with Vodafone exit

City A.M. Reporter
Vodafone’s exit from France’s SFR marks another step in the revamp of its portfolio and reflects how Europe’s telecom giants are ditching weaker assets to achieve scale elsewhere ahead of a wave of big investments.

The long-awaited €7.95bn (£7bn) sale of Vodafone’s 44 per cent stake in SFR to Vivendi comes two weeks after Deutsche Telekom AG agreed to sell out of the US for $39bn (£24bn).

Vodafone also recently agreed to buy out its Indian partner for a $5bn price tag to increase its exposure to the world’s fastest-growing mobile market.

This recent flurry of deal-making reflects a move by telecoms firms to counter sluggish growth and respond to threats from new entrants, such as Google and Apple who are eating in to mobile profits.

With consumers using more smart phones and tablet computers, data is exploding on networks, raising the need for investment.

To cope, telecom operators, such as Vodafone and Deutsche Telekom, are cutting down their portfolios to focus on markets where they can achieve scale, unwinding aggressive international expansions undertaken a decade ago.

Vivendi’s move for SFR will increase its cash flows and profits, giving it more firepower to fend off increasing competition in the French telecoms market and funds to acquire precious fourth generation mobile spectrum this summer.

The telecom giants are also returning money to shareholders in a bid to placate them before undertaking large investments in mobile and fixed networks as well as spectrum auctions now underway in the UK, France, and Spain.

Vodafone and Deutsche Telekom both pledged multi-billion euro share buybacks after their deals, while Vivendi signalled that the SFR buyout would lead to an increase in its dividend.

Shares in Vodafone, which initially rallied on the deal, closed virtually flat at 178.85p yesterday.