Vodafone Exits France As It Offloads SFR Stake

Vodafone has ended its French stalemate by selling off its minority stake in SFR for £7 billion

Vodafone has made a strategic withdrawl from the French market after selling its stake in that country’s second largest mobile operator, SFR.

Vodafone sold off its 44 percent stake in SFR to Vivendi for €7.95 billion (£7bn), a move that gives Vivendi full control over the French mobile operator. Vodafone will also receive a further €200 million (£176m) when the deal is completed

The deal has been long expected, following months of talks between the two organisations.

“Our board remains committed to realising maximum value from our non-controlled assets. The sale of our stake in SFR, at an attractive multiple, represents a significant further step in the execution of this strategy,” said Vodafone’s chief executive Vittorio Colao.

“By returning £4 billion to our shareholders, we are increasing our current buy-back programme to £6.8 billion in total, equivalent to over 7 percent of Vodafone’s current market capitalisation,” he added.

French Stalemate

Vodafone grew into the world’s largest mobile operator (by revenue) under the leadership of Sir Christopher Gent, who transformed the British operator into a global player through the £112 billion takeover of Mannesmann of Germany back in 2000.

Gent also oversaw the acquisition of minority stakes in overseas operators. Traditionally Vodafone then slowly increased those stakeholdings, until it could gain majority control of the local operator.

While this strategy bore fruit in many markets, such as South Africa, Vodafone faced stalemate in France, Europe’s third largest telecom market, as Vivendi refused to sell.

And the Newbury-based operator also has to contend with investor pressure over its numerous minority stakeholdings, where it cannot achieve overall control.

Indeed, news of sale seems to have been well received by both the markets and the analyst community.

“For Vodafone, this marks another chapter in the realignment of its strategic assets,” said Emeka Obiodu, an analyst at Ovum. “The plans to return £4 billion via a share buyback will please shareholders. And they will be hoping for more soon. With SFR gone, attention will now shift to the 24.4 percent stake in Poland’s Polkomtel and the 45 percent stake in America’s Verizon Wireless.”

Global Reorganisation

The sale comes as Vodafone is in the process of rationalising its ownership portfolio.

The British operator has already sold off its 3.2 percent minority stake in China Mobile for £2.7 billion, and the operator also underwent an ignominious retreat from Japan when it exited its Japanese business (Softbank).

Now Vodafone is expected to sell off its 24.4 percent of the Polish operator, Polkomtel, for an estimated €4 billion (£3.5bn).

But the operator is not just selling off its minority stakes, but is also looking to resolve its presence in some of the world’s key mobile markets.

American Issue

For example, Vodafone made significant acquisitions in countries such as Turkey and India, where it recently exercised an option to acquire Essar’s 33 percent stake in its joint venture (Vodafone Essar) for £3.1 billion. That deal has increased Vodafone’s stake in the operator to 75 percent, and gives Vodafone control over its destiny in the world’s fastest-growing mobile market.

But the real challenge facing Vodafone’s boss Colao is the United States, where Vodafone has a toe-hold in the one of the world’s most important markets thanks to its 45 percent holding in Verizon Wireless.

Verizon Wireless has made it clear that it wants to buy Vodafone’s minority stake, and the US operator has not even paid Vodafone any dividends since 2005, which had led to Vodafone shareholder pressure for a return on their investments.

However Colao does face the issue of a massive UK tax bill, if a sale of the Verizon Wireless stake were to take place.