Vodafone is on the acquisition trail again, but this time the telecoms firm, known for its aggressiv...
Vodafone is on the acquisition trail again, but this time the telecoms firm, known for its aggressive M&A activity, seems to be headed in the right direction.
Many fund managers believe that SFR, the mobile phone component of the French company Cegetel, is an attractive asset for Vodafone to acquire, however the price is the key.
Because Vodafone is now the fourth largest company in the FTSE All-Share, having slipped from making up more than a tenth of the entire market, the deal is significant for every UK equity fund that operates a close tracking error to the market.
Vodafone now makes up 5.68% of the All-Share as of 11 September and it is the fourth largest company in the FTSE 100, making up 6.665% of the index to the same time.
David Keir, investment manager at Edinburgh Fund Managers, says SFR is a very good business and the French market is one of the major European areas in which Vodafone does not have a stake.
SFR has around 60 million customers and Keir says that mobile phone penetration in France is a long way behind that of the rest of Europe, its penetration is 62% while the UK has 79%.
Keir says: 'SFR is a good business. The key is how much Vodafone pays for it. The market believes it will be around £8bn, if they pay more than this the market will be concerned. Vodafone can afford this amount without any risk to its credit rating.'
The French market is also the only market in Europe to be growing its ARPU (average revenue per user) says Keir. In the rest of Europe it is either flat or falling. Keir suspects this is a one off acquisition for Vodafone and not the start of a new acquisitional trend for the company. He says it was well flagged that Christopher Gent was interested in the company and that it was all about getting the timing right for the bid.
Vivendi owns around 44% of Cegetel and as Vivendi is deeply indebted and needs to raise cash quickly, Keir says the timing now is right for the bid.
Lee Harrison, UK equity fund manager, at Credit Suisse Asset Management (CSAM), says Vodafone's strategy is acceptable to the market as long as it continues to make selective in-fill acquisitions to expand its footprint.
He adds that as the French market is immature it makes sense to make acquisitions in that area, if possible without over-paying.
Harrison says that Vodafone has indicated that the acquisition might be slightly more expensive than they would like to pay, but as the French market is relatively immature it would probably still be a positive.
Harrison says: 'One of the great strengths of Vodafone's business is that it could be very cash generative if they slowed the rate of acquisition expenditure.
'The management are getting the message that shareholders want to see slow and selective acquisition rather than the more breakneck expansion that we have seen in recent years.'
This, says Harrison, should mean the greater appreciation of the cashflow strengths of the business will come to be realised by investors.
SFR is seen as a good business.
ARPU is growing in France.
Vodafone increased global footprint.
Vodafone's shares well down on high.
Vivendi in France is deeply indebted.
Danger of overpaying for acquisition.
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