Vodafone to sell Hungarian business for $1.8bn to state-backed groups

Vodafone has agreed to sell its Hungarian business for $1.8bn, in a deal that will streamline its global operations and allow it to reduce debt as well as help Prime Minister Viktor Orbán consolidate his influence in the sector.

The UK-headquartered telecoms group said on Monday it had entered into a non-binding agreement to sell 100 per cent of its business to 4iG, a sprawling holding company with close ties to the Budapest government, and Corvinus Zrt, a Hungarian state holding company.

Vodafone’s strategy has been under scrutiny since January, when it emerged that Cevian Capital, Europe’s largest activist investor, had taken a stake and was pushing for a simplification of the group’s sprawling business and for the sale of poorly performing businesses.

Nick Read, Vodafone’s chief executive, has been vocal about his ambition to gain scale and pursue mergers and acquisitions in important markets, such as Spain, Portugal, Italy and the UK. The extra cash from a sale of its Hungarian business would help reduce its net debt, which stood at €41.6bn in March.

The combination of Vodafone Hungary and 4iG will create the second-largest mobile and fixed operator in the central European country, making it a stronger competitor to the incumbent Magyar Telekom, a subsidiary of Deutsche Telekom.

Read said: “The combined entity will increase competition and have greater access to investment to further the digitalisation of Hungary.”

Orbán, Europe’s longest serving government leader who secured a fourth successive landslide election win earlier this year, has grown his power in the Hungarian business world.

4iG has been an important player in his plans to develop more influence in the telecoms sector. The company said last year it wanted to “create a telecommunications infrastructure provider that can adequately represent national interests in the sector, aside from competitive market services”.

“Governments since 2010 have held on to a prominent goal of strongly increasing the proportion of Hungarian ownership in strategic industries, preferably to a majority,” economic development minister Márton Nagy said in a statement.

“This government goal has already been reached in the bank, energy and media sectors, and now a Hungarian company, with the backing of a state ownership, has a chance to step up as an important player in the telecommunications market as well.”

The sale price of Ft715bn ($1.8bn) is more than 9 times Vodafone Hungary’s adjusted earnings before interest, tax, depreciation and amortisation for the 12-month period ending in March. Vodafone’s services business, VOIS, is not included in the transaction and will continue its operations in Hungary.

Vodafone said last month it was on track to deliver its full-year guidance, expecting adjusted ebitda to be between €15bn and €15.5bn. Total group revenue in the past quarter edged up to €11.3bn, from €11.1bn a year earlier.

Emirates Telecommunications Group announced in May it had acquired a 9.8 per cent stake in Vodafone for about $4.4bn, one of the largest investments it had made in more than a decade. The state-controlled investment group, whose chief executive spent 17 years in senior positions at Vodafone, voiced support for the company’s management and strategy.

The company’s share price remained flat in early morning trading on Monday, but has gained 6 per cent this year, to 122p.