• Part-sales of DT’s GD Towers and Vodafone’s Vantage have not blocked the path to a combination between the two TowerCos and/or Orange’s TOTEM, says boss Vivek Badrinath.
  • Vantage open to both in-footprint consolidation and ex-footprint expansion.
  • Cornerstone takeover of interest after Vantage’s co-parents put their stake in play.

Vantage CEO says ‘game still on’ for European mega tower merger

Vantage CEO says ‘game still on’ for European mega tower merger

Source: Hannah Busing / Unsplash

Vivek Badrinath, Chief Executive of Vodafone wireless infra spinout Vantage Towers, insisted it retains an “open door” to a combination with Deutsche Telekom’s equivalent business in the wake of both parties’ recent investor tie-ups.

Speaking during Vantage’s Q2 FY22–23 results presentation yesterday, Badrinath said the “game is still on, in a certain way” when it comes to European tower market consolidation, whether involving DT’s Deutsche Funkturm (DFMG) unit or Orange’s TOTEM arm.

He acknowledged that following Vodafone’s agreement to hand co-control of Vantage to a consortium led by Global Infrastructure Partners and KKR, market strategists that had advocated for an ‘industrial’ mega-merger would “have to go back to the drawing board on what shape or form such a combination would take”.

However, he noted that DT’s leadership had reiterated it was open to a combination with Vantage in the wake of a parallel deal in July, seeing the German group agree to sell a majority stake in DFMG’s parent GD Towers business to Brookfield Asset Management and DigitalBridge (Deutsche Telekomwatch, #117).

Ramon Fernandez, Head of Finance, Performance & Development at Orange, asserted in late-October that TOTEM “will be part of the consolidation of the tower market in Europe”, and Badrinath said he expected an update from the French operator on its tower assets strategy at an investor event in the first quarter of 2023.

“ Having two strong infrastructure-focused players who obviously have a view that the European tower market is going to consolidate, and that they could be part of it, I think leaves quite a few doors open for the future. ”

Badrinath.

Cell-nixed: telco club deal remains the focus

No mention was made of a possible Vantage tie-up with either of the two other players perceived to make up Europe’s wireless infra ‘big five’ — neither of which have a regional telco major lineage: American Tower, which bought much of the portfolio of Telefónica’s Telxius business in 2021, and has continued to indicate interest in European M&A since; and Cellnex, which has built up a deep presence across the region through numerous acquisitions, but in recent months has refocused onto balance sheet strengthening. Cellnex retains close ties with DT, with joint infra investments in the Netherlands and elsewhere.

Vantage has eye on expansion of ten-market footprint

Answering a question from Andrew Lee of Goldman Sachs, Badrinath indicated Vantage retains interest in both in-country and cross-border combinations, although sees the potential for greater business gains from absorbing existing market rivals. “We’ve always said in-country [consolidation] is easy to model and indeed increases the strength of our grid, so [I am] always excited and always interested”, he said.

Regarding cross-border transactions, Badrinath said these deals offer “economies of scale, scope, and experience”, but the synergies are “not massive compared to the size of these entities”. Nonetheless, he indicated that, over time, as TowerCos mature, they could become more attractive.

“ They’re still relevant. They give us speed and efficiency… As this industry evolves, and professionalises more and more, the ability to consistently drive tower operations at a high level of proficiency across geographies will make a difference as well. ”

Badrinath.

GD Towers and TOTEM both overlap Vantage’s footprint — in Germany and Spain, respectively — but a deal with either player would also have a cross-border component through their operations in Austria and France.

TOTEM, GD Towers, and Vantage Towers comparison
 FootprintTower totalOwnership (anticipated)
 

Notes: * Currently 100%-owned by DT. Completion of Brookfield/DigitalBridge deal expected in early-2023.
** Currently 81.7%-owned by Vodafone, with remainder in free float. GIP/KKR deal completion expected by 30 June 2023.
*** Envisaged shareholding levels assume successful conclusion of fund buy-in plus public takeover offer of minority shareholdings.

Sources: TowerCos.

GD Towers

Austria, Germany

41,000

Brookfield Asset Management / DigitalBridge: 51%

Deutsche Telekom: 49% *

TOTEM

France, Spain

27,000

Orange: 100%

Vantage Towers

Czech Republic, Germany, Greece, Hungary, Ireland, Portugal, Romania, Spain, plus joint ventures in Italy (INWIT) and UK (Cornerstone)

83,000

Global Infrastructure Partners, KKR, and other partners: Up to 50% (indirect)

Vodafone: c. 50% (indirect) ** ***

Cornerstone takeover would be a ‘good step’

Another opportunity for Vantage to expand its footprint, in a sense, looks to have emerged in the UK, where Telefónica and Liberty Global, its partners in joint venture Cornerstone Telecommunications Infrastructure Limited, are reported to be considering selling their 50% stake to help fund fibre rollout in the country (Telefónicawatch, #168).

Badrinath told analysts on the results call that there was “nothing that precludes” a full takeover of Cornerstone in the move by its co-owners. Vantage was “continuing to look at Cornerstone. We continue to believe, as a management team, that it is a relevant asset for us and that consolidating Cornerstone would be a good step for Vantage Towers”, he added.

The CEO previously stated that he would be “very motivated” by any opportunity to consolidate Cornerstone (Vodafonewatch, #201).

Get cash first — consolidation can wait

Telco stakeholders have long been anticipating a deal between Vantage and another member of the emerging European tower elite, and the moves by DT and Vodafone to team up with infra investors instead — presumably part-motivated by the drop seen in many InfraCo valuations over the past year — appears to have temporarily derailed the narrative.

Nick Read, CEO of Vodafone, indicated as recently as September 2021 that the Group was looking at further M&A options regarding Vantage, while specifically referencing “co-control scenarios with like-minded industrial players”. In November 2021, he went on to predict that Europe will end up with “three large players” in the tower market, and that “we are definitely going to be one of those players” (Vodafonewatch, #199 and #201).

Following the GIP–KKR deal, announced last week, Read called it a “landmark moment for both Vodafone and Vantage Towers”, adding that “this transaction successfully delivers on Vodafone’s stated aims of retaining co-control over a strategically important asset, deconsolidating Vantage Towers from our balance sheet to ensure we can optimise its capital structure and generate substantial upfront cash proceeds for the Group to support our priority of deleveraging”.