Confirmation ahead of positive Q3 earnings report, as UK and parent Liberty Global continue efforts to boost share price
Virgin Media O2 confirmed it is to sell a 16.667% stake in its co-owned towerco to investment firm GLIL Infrastructure for £360 million. This values Cornerstone at £2.16 billion, rather less than the £2.5 billion suggested by Reuters last weekend.
Even so, the selling price is 18.7x Cornerstone’s adjusted earnings before interest, tax, depreciation and amortisation after leases (EBITDAaL) for the year to March 2023. This is much lower than the multiples paid at the height of the tower grab, but it still knocks spots off Vodafone Spain’s selling price to Zegona Communications, say, at just 3.9x earnings which was announced yesterday. In other words, relatively speaking, towers retain their allure for investors.
VMO2 holds on
This is perhaps why VMO2 is only selling part of its holding after speculation earlier this year that it might sell its entire share. After the transaction, VMO2 will have 33.33% of Cornerstone, with Vodafone’s towerco, Vantage Towers continuing with 50% ownership. Another holding company will be set up to as a home for GLIL and VMO2’s shares once the deal is done, which is expected to be within weeks.
Lutz Schüler, (pictured) CEO of Virgin Media O2, commented, “Selling a minority stake in Cornerstone is a logical move for us. We are partially monetising our tower infrastructure, while retaining operational and strategic co-control in a key asset as we roll out 5G to more of the country and boost 4G connectivity.
“This deal aligns perfectly with our core infrastructure and capital allocation strategy which sees Virgin Media O2 continue to invest in the UK to expand and upgrade our next generation fixed and mobile footprints.”
Fixed approach
In what are tough times, VMO2’s revenue grew during Q3 by more than 7% compared with the same period last year, to £2.77 billion. This translated to a 5.6% rise to just over £1 billion in adjusted EBITDA. Even so, its debt stands at £21.3 billion.
In the three months to the end of September, VMO2’s fixed business added 32,500 customers net, so its base is now 5.8 million. Net contract customer gains for mobile hit 50,000; the total number of mobile connections added was 649,600 which includes prepaid, contract, IoT and wholesale.
VMO2 passed 250,800 more premises with fibre during the quarter, mostly through the nexfibre wholesale business, which is a joint venture between VMO2 and its parent companies, Telefonica and Liberty Global.
However, VMO2 also acquired the altnet fibre provider Upp during the quarter, which it plans to sell to nexfibre next year. Upp has about 4,000 retail and business customers and offers broadband services to about 175,000 premises in the east of England.
Mobile matters
VMO2 says it is to expand 5G coverage to more than 3,200 towns and cities, and will hit its target of bringing coverage to 50% of the UK population this year.
Schüler seemed to hint that other M&A activities could be an option, saying “We’ll continue to be opportunistic in the market where the economics and strategic logic stacks up as recently demonstrated through the successful acquisition of Upp, and the sale of a minority stake in our mobile tower joint venture Cornerstone.”
European values
During this quarter Liberty Global became the sole owner of Belgium’s Telenet and promptly delisted it. Liberty Global’s CEO Mike Fries explained this is part of a wider drive to release value from the company’s assets and commented, “nothing is off the table”.
It looks like some innovative thinking will be needed. Liberty Global reported its earnings at the same time as its offspring, VMO2. Its earnings report excludes the joint ventures it has in the UK and the Netherlands (VodafoneZiggo).
It also has opcos in Ireland, Belgium (as noted above re Telenet), Switzerland (Sunrise) and Slovakia (UPC). Their collective Q3 revenues were $1.85 billion, according to this statement, an increase of 6.2% compared with the same period in 2022. However, its adjusted earnings of $598 million are down by 10%.
Fries commented, “Strategically, we achieved a number of recent milestones to drive future value
creation. On our next results call we anticipate providing a longer update on these and other core
initiatives that will reduce the significant value gap we perceive in our stock price.”