TIDMVOD
Vodafone Group Plc
30 August 2018
30 August 2018
VODAFONE GROUP ANNOUNCES MERGER BETWEEN VHA AND TPG
Vodafone Group Plc ("Vodafone") announces that Vodafone
Hutchison Australia Pty Limited ("VHA") and TPG Telecom Limited
("TPG") have agreed a merger to establish a new fully integrated
telecommunications operator in Australia ("MergeCo").
The merger brings together leading talent in Australia's mobile
and fixed broadband sectors and accelerates the benefits of the
substantial network investments made by both companies. The merged
company will be a more powerful challenger to Telstra and Optus in
Australia, with an integrated fixed and mobile offering. It will
also be better able to invest in next generation mobile and fixed
networks and drive innovation, service and product improvements to
benefit Australian telecoms customers.
Vodafone and Hutchison Telecommunications (Australia) Limited
("HTAL") will each own an economic interest of 25.05% in MergeCo,
with TPG shareholders owning the remaining 49.9%. The Board of
MergeCo will comprise: David Teoh, as Chairman (currently CEO and
Chairman of TPG), Iñaki Berroeta as Managing Director and CEO
(current CEO of VHA), existing TPG directors Robert Millner and
Shane Teoh, two nominees of Vodafone, two nominees of HTAL, and two
new independent directors. MergeCo will be listed on the Australian
Securities Exchange (ASX) and called TPG Telecom Limited. There are
no changes currently planned to any of the existing brands of
either VHA or TPG.
The merger is expected to generate substantial cost synergies
from the combination of two complementary networks, rationalisation
of duplicated costs and economies of scale. Additionally, the
combined entity will benefit from revenue synergies through
cross-selling of products across both VHA and TPG's corporate and
consumer customer bases.
The agreed merger ratio implies an enterprise value for VHA of
A$7.5 billion. This is equivalent to valuing VHA at 7.4x EV/LTM
June 2018 EBITDA and 19.2x EV/LTM June 2018 operating free cash
flow (OpFCF). MergeCo will have a pro forma enterprise value of
approximately A$15.0 billion, revenue of over A$6.0 billion, EBITDA
of over A$1.8 billion and OpFCF of A$0.9 billion. Approximately
A$2.0 billion of VHA's existing debt will be contributed to
MergeCo, which will have pro-forma leverage of approximately 2.2x
net debt/EBITDA[i] and an expected strong investment grade credit
profile. The strong cash generation of the combined entity is
expected to support an attractive dividend. It is intended that
MergeCo will pay a dividend of at least 50% of net profit after tax
adjusted for one-off restructuring costs and certain non-cash items
("Adjusted NPAT")[ii] and have a medium-term target leverage range
of 1.5-2.0x net debt/EBITDA. Vodafone's interest in MergeCo will be
accounted for under the equity method.
Vodafone and HTAL's shareholdings in MergeCo, and the remaining
VHA net debt of approximately A$4.8 billion that will not be
contributed into the merged company, will primarily be held through
an entity jointly owned by the Vodafone Group and HTAL. Debt held
through this entity will be serviced by dividends from MergeCo, and
will not be consolidated by Vodafone or HTAL. Vodafone will provide
a guarantee on approximately A$2.4bn of this debt, lower than the
approximately A$3.3 billion guarantee that Vodafone currently
provides for VHA's debt.
Vodafone, HTAL and David Teoh have entered into a 24 month
standstill arrangement in relation to their shareholdings in the
combined business.[iii]
Nick Read, CEO-designate, Vodafone, said: "This transaction
accelerates Vodafone's converged communications strategy in
Australia and is consistent with our proactive approach to enhance
the value of our portfolio of businesses. The combined listed
company will be a more capable challenger to Telstra and Optus, and
will be much better placed to invest in next generation mobile and
fixed line services to benefit Australian consumers and
businesses."
In parallel to the merger agreement, TPG and VHA have signed a
separate Joint Venture Agreement. The scope of the joint venture is
to acquire, hold and licence 3.6 GHz spectrum. The Government is
auctioning 125 MHz of 3.6 GHz band spectrum, with the auction
expected to commence in late November 2018. The joint venture will
register as a participant in the auction. In addition, the parties
will negotiate with the aim of expanding the business of the joint
venture in future, including to acquire future spectrum licenses
and/or facilitate various forms of efficient spectrum and network
sharing including a shared 5G Radio Access Network. The Joint
Venture Agreement is ongoing, and will not terminate if the merger
fails to proceed.
It is anticipated that the merger will complete in 2019, subject
to approval from TPG shareholders and regulatory authorities.
- ends -
Further information
Vodafone Group
Media Relations Investor Relations
www.vodafone.com/media/contact Telephone: +44 (0) 7919 990 230
Advisers to VHA
BofA Merrill Lynch and Deutsche Bank are acting as financial
advisers and Norton Rose Fulbright is acting as legal counsel.
About Vodafone Group
Vodafone Group is one of the world's largest telecommunications
companies and provides a range of services including voice,
messaging, data and fixed communications. Vodafone Group has mobile
operations in 25 countries, partners with mobile networks in 46
more, and fixed broadband operations in 18 markets. As of 30 June
2018, Vodafone Group had 534.5 million mobile customers and 19.9
million fixed broadband customers, including India and all of the
customers in Vodafone's joint ventures and associates. For more
information, please visit: www.vodafone.com.
About VHA
VHA is Australia's third largest mobile operator which is owned
50/50 by HTAL and Vodafone Group and has a mobile customer base of
approximately 6 million subscribers as of 30 June 2018. It owns and
operates a fixed-wireless mobile network with over 5,000 sites,
international transit capacity and a strategic portfolio of
spectrum assets.
About TPG
TPG is an ASX listed, Australian telecommunications provider
with Australia's second largest fixed line residential subscriber
base (over 1.9 million customers) and a significant corporate,
government and wholesale business. TPG owns and operates a
27,000km+ metropolitan and inter-capital fibre network.
VHA and TPG estimated contributions to MergeCo - Jun-18 LTM
A$ million VHA TPG MergeCo
Implied equity value[iv] 5,463 5,442 10,905
Net debt contribution[i] 2,024 2,024 4,048
-------------------------- ------ ------ --------
Enterprise value 7,487 7,466 14,953
Revenue[v] 3,569 2,498 6,022
EBITDA[v] 1,008 839 1,855
Capex[vi] 617 343 960
OpFCF[vii] 391 497 895
[i] Leverage includes $1,944 million of VHA's net debt and
$1,672 million of TPG's net debt at closing and 700 MHz spectrum
payments of A$80m and A$352m due in January 2019, respectively.
Leverage does not include the 700 MHz spectrum payments due in
January 2020 of A$80m and A$352m for VHA and TPG respectively, nor
any working capital adjustments that may be required.
[ii] Adjustments of one-off restructuring costs and certain
material non-cash items in order to ensure that the Adjusted NPAT
is more closely aligned to the cash generation of MergeCo.
[iii] Vodafone has agreed to a 24 month escrow period in
relation to its entire shareholding in MergeCo, commencing from
implementation of the Scheme, during which period Vodafone cannot
sell its shares in MergeCo. TPG Chairman David Teoh has also agreed
to a 24 month escrow in MergeCo following implementation of the
Scheme.
[iv] Equity value of TPG based on TPG's last close undisturbed
share price of A$6.29 as at 21 August 2018 adjusted for the
difference between TPG's current net debt of A$1,266m and its
target net debt of A$1,672m. Implied equity value of VHA based on
agreed merger ratio after adjusting for TPG's target net debt.
Excludes adjustments for the demerger of TPG's Singapore
business.
[v] VHA revenue and EBITDA is for last 12 months as at 30 June
2018, TPG revenue and EBITDA is for last 12 months as at 30 June
2018. MergeCo revenue and EBITDA presented on a pro-forma basis
including consolidation adjustments.
[vi] VHA cash capex is for last 12 months as at 30 June 2018
excluding one-off capitalised commission adjustments, TPG cash
capex is for last 12 months as at 30 June 2018. MergeCo capex
presented on a pro-forma basis including consolidation
adjustments.
[vii] OpFCF defined as EBITDA less Capex, excluding spectrum
payments and one-off payments of capital creditors.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
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of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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