Vantage Towers: Why Vodafone is floating its masts subsidiary

UK telecoms giant Vodafone wants to launch an IPO of its rapidly growing subsidiary, Vantage Towers. But what is the thinking behind this move?

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What is Vantage Towers?

Vantage Towers is Europe's largest company when it comes to building and operating mobile phone masts or towers (also known as cell sites). It has 82,000 sites across 10 markets on the continent and holds a no. 1 or no. 2 market position in nine of them.

Everybody expects to be able to use their mobile phone pretty much wherever they are, but signals can still be choppy, inconsistent or weak in both urban and rural areas.

For that reason, and with an increased requirement for stronger mobile data offerings – 5G is now a standard offering on many handsets and 6G is expected to be commercially available in the 2030s – the need to build fresh mobile tower infrastructure remains high on the agenda.

Vantage Towers is a relatively new concern. In 2019, UK-based Vodafone Group created a legally separate organisation comprising its European mobile towers. This business was officially named Vantage Towers on 24 July 2020 with headquarters in Düsseldorf, Germany.

What is Vodafone saying about the IPO?

Vodafone has priced shares in infrastructure unit Vantage Towers at €24 euros each, valuing the firm at €12.1 billion euros ($14.5 billion) in one of Europe’s largest initial public offerings this year, Vantage Towers said.

It's set to be the largest European telecoms IPO since Belgacom in 2014, and Germany’s largest listing since Knorr Bremse in 2018, both of which raised £3.17 billion, Refinitiv data showed.

Vodafone is reaping as much as €2.3 billion euros from the deal, assuming that an overallotment option (greenshoe) is fully exercised at the final offer price, Vantage Towers added.

“This IPO unlocks value for our shareholders: it demonstrates the value of our towers assets in a 5G world,” Vodafone Chief Executive Nick Read said.

Assuming the greenshoe will be fully exercised, Vodafone will continue to hold 81.1%, according to calculations made by Reuters.

The deal adds to a strong pipeline of new listings this year including Polish e-commerce firm InPost, German used-car trading platform AUTO1, British footwear brand Dr. Martens and food delivery firm Deliveroo.

Why is Vodafone proceeding with the IPO?

Vodafone has to raise funds to pay off some of its large debt in excess of £40 billion, and the Vantage Towers IPO should help considerably with this necessity. But there is a more subtle strategy at play too. 

It shed 20% of its value in 2020, performing twice as poorly as the FTSE 100 index itself, of which it remains a component part. 

Some analysts, however, suggested it had become undervalued on a long-term view. They noted its better-than-average dividend yield and some significant successes: Vodafone stepped up investment in 5G and increased its fixed-line sales through faster speeds and better customer service.  

Thus, it hopes a successful Vantage Towers IPO will give a more accurate market value of Vodafone’s remaining stake in the business. 

When is the Vantage Towers IPO?

Trading is slated to start in Frankfurt on March 18.

Infrastructure investor Digital Colony and Singapore-based global equity fund RRJ have agreed to be cornerstone investors and buy a total of €950 million in shares.

Bank of America, Morgan Stanley and UBS are joint global coordinators and joint bookrunners on the deal.

Barclays, Berenberg, BNP Paribas, Deutsche Bank, Goldman Sachs and Jefferies are joint bookrunners.

Is Vantage Towers profitable?

The medium-term outlook for Vantage Towers is largely positive. It expects to hit its full-year earnings target of around €535 million (£462m) and is on track to have opened 550 new sites in the financial year ending in March. 

The long-term outlook is less certain. Vantage’s business model is to rent space on its existing towers to other operators who will increasingly need to build out their networks to continue to support demand for new generation 5G. 

However, there is no guarantee that other operators will continue to rent Vantage’s towers at the same level indefinitely. Other factors, such as rival operations entering the market and supply eventually meeting current levels of demand for fresh sites, could be negative factors. 

Who are Vantage Towers’ competitors?

Vantage Towers’ competitors include the German giant Deutsche Telekom. With headquarters in Bonn, it is the largest telecommunications provider in Europe and boasts an annual revenue in excess of €80 billion (£70bn). 

Telefónica, based in Madrid, is one of the largest telephone operators and mobile network providers in the world; as with Deutsche Telekom, it also operates a sideline in towers. 

Cellnex, based in Barcelona, is the other chief rival in the market. Until Vantage Towers began operations it was the largest tower network in Europe by scale. 

What dividends will Vantage pay?

One of the attractions to investors, or so Vantage hopes, is that anybody wanting to take up the offering should expect strong dividends from their investments. 

The newly independent operator will pay out €280 million (£240m) in dividends for this financial year, to be paid in July, and has pledged to pay 60% of recurring free cashflow in subsequent years.

An indication of the future direction of those dividends is that Vantage is targeting free cashflow growth of “mid-to-high single digit” percentage annual compound growth.  The pricing will not be decided until consultations with potential investors have been concluded in the coming weeks. It is estimated, however, that the float could raise something around the €4 billion (£3.4bn) in new money to build out the network. 

Who are the directors of Vantage Towers?

On 1 April 2020, Vivek Badrinath was appointed CEO of Vantage Towers. Previously, the Frenchman had been CEO of Vodafone’s Rest of World operations, a position he held from October 2016. 

Chief commercial officer Sonia Hernandez is also an internal hire, having been with Vodafone in various senior roles since 2012, while chief technology officer José Rivera was responsible for rapid growth at Vodafone Portugal. 

Full leadership team:

  • Chief executive officer: Vivek Badrinath 
  • Chief commercial officer: Sonia Hernandez 
  • Chief technology officer: José Rivera 
  • Chief financial officer: Thomas Reisten 
  • General Counsel: Christian Sommer 
  • Human Resources director: Nikolaus Rama 
  • Chairman of the Supervisory Board: Rüdiger Grube 

When is the Vantage Towers IPO?

Vantage Towers AG's listing and first day of trading on the Frankfurt Stock Exchange is scheduled to be “before the end of March 2021,” according to a press statement released by Vodafone. The offering will consist of a secondary sell-down of existing shares held by Vodafone GmbH. 

It does warn that this date is “subject to capital market conditions,” before continuing: “the target free float of a meaningful minority share is expected to create a liquid market for Vantage Towers shares.”

How much is Vantage Towers worth?

Vantage Towers could be valued at €15 billion (£13bn), according to the more conservative estimates of analysts. 

The company stresses its growth is “underpinned by long-term, inflation-linked contracts with tenants, new build tower commitments and increasing demand for tenancies.” 

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