Vodafone rules out gatecrashing Virgin-O2 deal
UK telecoms group posts strong full-year results and maintains dividend
Vodafone said it had no plans to gatecrash the £31bn merger of rivals Virgin Media and O2 as it reported strong full-year results and maintained its dividend.
The British company has long been seen as a potential merger partner for Liberty Global’s cable business, Virgin Media, and has held talks with the US company in the past. Some analysts and bankers thought Liberty’s deal with O2 would be a potential trigger for Vodafone to make a rival offer.
But Nick Read, Vodafone’s chief executive, said it would continue to focus on organic growth in the UK.
The merger with O2 has put a steep value of £18.7bn on Virgin Media.
Mr Read said that BT’s £12bn fibre investment plan would encroach on Virgin Media’s market share in broadband. He said Vodafone could become a “strong anchor tenant” for the new full-fibre network, which it would lease to connect customers to high-speed broadband.
He added that Virgin Media’s lucrative pay-TV business was at risk from cord-cutting as customers turned to Netflix and other streaming services in the UK. “I do worry about the TV market.”
Virgin Media declined to comment.
Vodafone has pursued convergence — the combination of broadband, mobile and pay-TV services — in markets including Germany but Mr Read said the UK had a different structure, with Virgin Media more of a “regional” player compared with nationwide cable companies in Europe.
Vodafone’s performance in the UK, which accounts for only 10 per cent of its business, has been weak for years but improved in the 12 months to March, with earnings growing more than 10 per cent.
The group’s share price rose 6 per cent on Tuesday after it said it would not cut its dividend. Rivals including BT and Orange have reduced dividend payments in recent weeks. Vodafone cut its payout last year to reduce debt, which stood at €42.2bn at the end of the year.
The telecoms company increased revenue by 3 per cent to €45bn in the full year and reported a pre-tax profit of €795m, compared with a €2.6bn loss in the previous year, when a large write-off in the value of its Indian unit was booked. Its adjusted earnings before interest, taxation, depreciation and amortisation — the metric against which it provides guidance — grew 2.6 per cent to €14.9bn.
The London-based company said it expected adjusted ebitda to be flat or slightly down this financial year due to the uncertain economic outlook and a reduction in roaming profit of about €500m due to lower tourism and business travel.
Vodafone expanded its European customer base to 65m mobile users and 25m broadband customers in the year to March.
The company is finalising the separation of its European towers business ahead of a potential float or stake sale. Mr Read said that could still take place next year and pointed to the sale of an 8 per cent stake in Inwit, its tower joint venture with Telecom Italia, last month as proof that investor demand remained strong despite the coronavirus emergency.