Vodafone is to spin off its pan-European mobile mast business with an eye on a stock market flotation worth as much as €20bn (£17.9bn) in the next 18 months.
Shares in the world’s second largest mobile operator climbed almost 10% as investors relished the prospect of a windfall from a sale or initial public offering of Europe’s largest towers company.
The new standalone business, called TowerCo, will comprise 61,700 Vodafone masts across 10 countries, with 75% of the sites in principal European markets Germany, the UK, Italy and Spain.
The business will generate about €1.7bn in revenues and €900m profits, leading analysts to value the business at between €15bn and €20bn, based on valuations of other mast businesses.
The masts provide mobile coverage across each country allowing phone owners to make and receive calls and use data to access apps and websites. Income comes from leasing space on each mast to rivals offering their own mobile phone networks.
“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.”
The new company, which will have its own management team, will be operational by next May.
Vodafone began evaluating a spin-off of the towers business last year after receiving several offers for various parts of its portfolio. The company said it intends to monetise a substantial proportion of TowerCo within the next 18 months. This will include a potential flotation on the stock market, the sale of a minority stake in the whole business or in its mast operations in individual countries, depending on market conditions.
The proceeds will be used to pay down Vodafone’s mounting debt pile, which will reach €48bn when the company completes its €18.4bn deal to buy Liberty Global’s German and eastern European cable assets.
Vodafone has also spent €4bn on 5G spectrum as prices ballooned in auctions in Germany and Italy during the past year.
“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.”
The share price rise will be a boost to Read who has seen the company’s value fall by more than a fifth since he took over the role of chief executive last October. In May, Read was forced to cut Vodafone’s dividend for the first time since it became a standalone business in 1990, despite having initially said he would not do so.