With the aim of launching an initial public offering at the stock exchange within the next 18 months for a potential worth of as much as €20 billion, Vodafone plans to spin off its pan-European mobile mast business.

There was a rise of almost 8 per cent in the shares of the company after the news filtered out as investors were apparently happy with the prospect of making profits from a possible sale or an IPO of the largest towers company of Europe.

There will be an estimated 61,700 towers across 10 countries in the new standalone business called TowerCo. And the majority (75 per cent) of the towers of the new company is currently erected in the major European markets of Germany, the UK, Italy and Spain.

The new standalone business is expected to potentially generate about €1.7 billion in revenues and about €900 million profits. That has promoted analysts to set a potential market value of between €15 billion and €20 billion on the basis of and comparing with the valuation of the other companies involved in the same business.

“We are now creating Europe’s largest tower company,” said Nick Read, Vodafone’s chief executive. “Given the scale and quality of our infrastructure we believe there is a substantial opportunity to unlock value for shareholders.”

All the towers are however not wholly owned by Vodafone. For example, in the United Kingdom, half of the 18,500 towers are owned by O2 as a joint venture which means that an eventual sale or an IPO floatation planned by Vodafone for its mast business would potentially generate an amount of about €12 billion for O2.

Vodafone said that the new company will have its own separate management team and would start its operations by May next year.

Vodafone was given a number of offers for various parts of the portfolio of its tower business last year and the company had started evaluating a spin-off of the business unit since then. Vodafone wants to monetise a significant proportion of TowerCo, which would include exploring a possible public listing or the sale of a minority sale depending on the right market conditions, Vodafone said. This is to be achieved over the next 18 months.

The company plans to bring down its mounting debt pile from the proceeds of a deal. The company’s debt is expected to reach €48 billion after the completion of its acquiring of buy Liberty Global’s German and eastern European cable assets in a deal worth €18.4 billion.

The company was also hit by a onetime charge of €4 billion for acquiring rights to 5G spectrum in Germany and Italy during the past year where there was a price escalation because of competition in auctions.

“Yes, Vodafone will lose the profits associated with running the towers, but it will also remove the €200m of annual spending tied up maintaining and expanding the network,” said George Salmon, equity analyst at Hargreaves Lansdown. “So it’s easy to see the logic for the deal, especially since the group’s debts are fairly pressing.”

(Adapted from TheGuardian.com)

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