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Vodafone invests in Eastern Europe with US$3.5B deal
By Laura Rohde

Vodafone Group PLC has spent US$3.5 billion to buy Romanian and Czech mobile assets from Telesystem International Wireless Inc. of Canada, the U.K. operator said Tuesday.

As part of the deal, Vodafone will gain an additional 79 percent of Romania's MobiFon S.A., bringing its stake to about 99 percent. It will also gain the assets of Oskar Mobil A.S. in the Czech Republic. Vodafone will take on about $900 million net debt in total, it said.

The acquisition will bring Vodafone 5.7 million additional customers and $1.3 billion in new revenue, the Newbury, England-based company said.

MobiFon is Romania's largest mobile operator, while Oskar is the third largest in the Czech Republic.

"MobiFon is the primary player in Romania and Oskar has a loyal customer base with quite good revenue. It's a good, timely investment," said Robin Hearn, an analyst with Ovum Ltd. in London.

Eastern Europe offers Vodafone good opportunities for expansion, Hearn said, particularly since its brand is already recognized there through its sponsorship of the soccer team Manchester United which plays matches throughout Europe. Vodafone has also been looking into acquisitions and partnerships in Poland, Albania, Lithuania and Greece, he said.

With plenty of cash reserves and a low debt load, Vodafone and its chief executive officer, Arun Sarin, have made no secret of the company's desire to expand, particularly in the U.S. Vodafone lost to Cingular Wireless LLC last year in its bid to buy AT&T Wireless Services Inc., and has been at logger heads with its partner Verizon Communications Inc. over increasing the size of its share in Verizon Wireless, something both companies would like to do.

Vodafone faces a similar situation in France, the last remaining Western European market where it does not have a dominant presence. Vodafone has repeatedly said it wants to increase its 44 percent share in French mobile operator Societe Francaise du Radiotelephone SA (SFR), but its partner, Vivendi Universal SA, has shown no desire to sell.

"Both Verizon Wireless and SFR generate lots of cash for Vodafone's partners and there is little reason to give that up unless Vodafone offered vast sums of money," Hearn said. "But the market has changed: these acquisitions don't go at any cost anymore, it has to make financial sense."

Vodafone's move into Eastern European could provide it with some interesting opportunities in the long term -- potentially even helping it to expand into the U.S. market, Hearn said.

The other major player in Eastern Europe is T-Mobile International AG & Co. KG, the mobile arm of Germany's Deutsche Telekom AG, which also owns T-Mobile USA Inc.

Vodafone's biggest desire is to get its brand into the U.S., giving it a more truly global presence. T-Mobile, on the other hand, is most comfortable in the Eastern European market on its doorstep, according to Hearn. T-Mobile, therefore, may at some point be willing to strike a deal with Vodafone, Hearn suggested, exchanging its U.S. holdings for Vodafone's Eastern European assets.

"There could be room there for an interesting swap somewhere in the future. So expansion into Eastern Europe is good for Vodafone in both the short and medium term, and may make for a good bargaining chip in the future," Hearn said.

Posted March 16, 2005 04:37 PM |