Belgacom Buys Vodafone Stake in Proximus, Sells Stake in Neuf Cegetel

Global mobile giant Vodafone has sold its 25% stake in Belgian mobile operator Proximus to Belgacom, in a deal that is bound to raise concerns about its operational strategy. Belgacom, which already owns 75% of Proximus, paid 2 billion euro (US$2.55 billion) to become the sole owner of Belgium's leading mobile operator. In a statement, Vodafone said that it expected to record a gain of approximately £450 million (US$848.9 million) from the deal, and would use the proceeds to pay down debt stock totalling £17.32 billion (US$32.68 billion) by 31 March 2006.

"Vodafone will no longer receive [the] anticipated dividend income from Proximus of approximately £150 million this year, and there will be a corresponding reduction in the group's free cash flow outlook for the financial year ending 31 March 2007," the company said in a statement. However, "this transaction does not materially affect Vodafone's proportionate mobile revenue and EBITDA [earnings before interest, tax, depreciation and amortisation] outlook for the financial year ending 31 March 2007."

Meanwhile, Belgacom has sold off its 5.8% stake in France's alternative fixed-line operator Neuf Cegetel to the country's number-two mobile operator, SFR. The sale price is expected to be at least 187 million euro, but could rise if Neuf Cegetel is floated. Belgacom said that it expected to realise a capital gain of 67 million euro from the sale.

Outlook and Implications

Who is Next?: Vodafone's sale of the Proximus stake is a big surprise for the industry. After the sale of Japanese unit Vodafone KK, the company was expected to proceed and sell off its 45% stake in Verizon Wireless in the United States. Verizon was reportedly willing to pay over US$40 billion to take total control of the operation, but Vodafone would not budge. While that possibility still exists, attention will now shift to the company's minority stakes worldwide. "We do not see ourselves as the most appropriate long-term holder of this minority stake," said Vodafone chief executive Arun Sarin.

With Proximus gone, Vodafone's 25% stake in Swisscom will certainly come under the spotlight. In April, the Swiss press reported that Swisscom wanted to buy Vodafone's 25% stake in Swisscom Mobile. However, it is unlikely that Vodafone will want to sell its 43.9% stake in SFR France. France is the biggest European market where the Vodafone brand is not represented. More importantly, Vodafone has a realistic chance of gaining control of SFR, unlike Proximus and Swisscom Mobile—here, it would almost certainly never be able to buy out Belgacom and Swisscom respectively (see World: 17 April 2006: Partners Mull Buy-Out of Vodafone's Stake in the U.S., Belgium and Switzerlandand France: 23 March 2006: Vodafone May Get Its Hands on SFR).

Changing Face of Vodafone: The sale of Proximus further reduces Vodafone's clout in the industry. For the management, the sale is another opportunity to pander to dissenting shareholders’ opinion. The company has now sold two units—in Japan and Belgium—following shareholder requests. Earlier this month, press reports stated that the company had been displaced by China Mobile as the largest mobile operator in the world. Although Belgacom had said it was interested in buying the stake, and some Vodafone shareholders questioned the rationale for maintaining minority stakes in several markets, the company was at the least expected to hold on to its European assets. In April, it restructured itself into three divisions and created a division to manage its European portfolio, a move that signalled the company was aiming to focus itself as a European operator. With the sale of the Proximus stake, and the potential sale of holdings in Swisscom Mobile and Verizon Wireless, the dream of a mobile-brand equivalent to Coca-Cola may be about to disappear (see World: 7 April 2006: Vodafone Realigns Units Ahead of Strategy Review and 13 March 2006: Vodafone's Global Strategy Under the Spotlight).

Neuf, SFR Tie Up: Belgacom's sale of its 5.8% stake in Neuf Cegetel effectively marks the end of its interest in taking over France's second-largest alternative fixed-line company. Interestingly, Belgacom has sold the stake to SFR, which is jointly owned by Vodafone and Vivendi. In fact, Vivendi has significant stakeholdings in both Neuf Cegetel and SFR, and the two companies exist as sister operations. Telecom Italia has also sold its stake in the French unit, leaving SFR as the major telecoms company with a stake in Neuf Cegetel. As France Telecom pushes forward with fixed-mobile convergence (FMC) with its Orange unit, the possibility of a more formal tie-up between SFR and Neuf Cegetel no longer appears remote (see World: 13 April 2006: Belgacom Plans Expansion to Emerging Markets; Denies Merger Talks with KPN).