Tag: vodafone

Will SoftBank-backed Sprint look to M&A?

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

After churning through the rumor mill for the past half-week, official word came Monday that Japanese telco SoftBank is making a significant investment in Sprint, the third-largest mobile carrier in the US. SoftBank is acquiring 70% of Sprint in exchange for approximately $20bn, of which $12bn will be distributed to shareholders in exchange for 55% of the existing company. The remaining $8bn will be used for network expansion, primarily related to deploying 4G LTE. Beyond those efforts, the new Sprint could look to use some of its newfound cash to expand via M&A.

In announcing the deal, Sprint noted that this investment comes at a prime time. The company is continuing to execute on a multiyear turnaround. After Dan Hesse took the helm in December 2007, he spent the next three years focused on reversing Sprint’s customer attrition and improving its beleaguered brand. (Of course, some of those difficulties stemmed from its acquisition of Nextel in 2004. However, regarding customer service, those issues have largely been resolved, as the table below shows.) SoftBank’s move comes during Sprint’s investment phase, where it is now focused on building out its network and improving operational efficiency.

Now, with a stronger balance sheet, we wonder if SoftBank-backed Sprint will look to M&A for accelerated expansion. SoftBank has already shown a willingness to consolidate telecom assets in its home Japanese market. Earlier this month, it announced that it would buy Japanese wholesale broadband provider eAccess for $1.84bn. And in 2006, it picked up Vodafone K.K., the Japanese mobile unit of Vodafone Group, for about $16bn.

Although Sprint has struggled with M&A in the past, it could be spurred to move once more, as there are only a finite amount of targets left in the US and one was recently removed from reach. Earlier this month, T-Mobile announced that it was acquiring MetroPCS, which had long been rumored as a Sprint acquisition target. After MetroPCS, the next most likely candidate for Sprint to buy is Leap Wireless, which, including its cash and debt, is valued at about $3.2bn.

Wireless service provider satisfaction rating by company – ranking of customers who say they are very satisfied with their current wireless provider

Rank October 2006 September 2012
1 Verizon – 45% Verizon – 48%
2 T-Mobile – 33% Sprint – 32%
3 Cingular (now known as AT&T) – 30% T-Mobile – 28%
4 Sprint – 25% AT&T – 21%

Source: ChangeWave Research

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Cable & Wireless Worldwide may lose independence

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

Just two years after parent company Cable & Wireless Group split itself into two businesses, the consumer division Cable & Wireless and the business services unit Cable & Wireless Worldwide (CWW), CWW may once again find itself as part of a larger organization. Vodafone confirmed Monday that it is in talks regarding the possible acquisition of CWW. The deal, which is rumored to be valued at roughly $1bn, should be welcome news to CWW’s investors, who have seen the company’s stock plummet by two-thirds in the past year.

Independent CWW, which provides fixed lines that link to wireless transmitters and switches, among other voice and data services, has fared poorly since the split, as revenue flatlined and the company issued several profit warnings. However, exploding Internet usage on mobile phones has caused renewed interest in CWW. Vodafone, which is light on its fixed-line capacity in the UK, would likely use the acquisition to enable more bandwidth availability for its mobile users. Vodafone will be able to take advantage of CWW’s vast infrastructure to backhaul its own cellular services, rather than rely on third-party operators. CWW’s investors are hopeful that the deal will come to fruition, with shares of the telco closing the trading day 30% higher. Vodafone has until March 12 to make a decision on the acquisition.

Buyer’s market

Brenon Daly

Contact: Brenon Daly

It’s a sign of the (dismal) times when an acquirer can offer a 250% premium for the shares of a target, and the stock is below where the company started at the beginning of 2008. (It’s just that kind of year.) That was the case with Vodafone’s $29m offer for Wayfinder Systems, a Swedish company that trades on the hometown Nordic Stock Exchange. According to terms, the British wireless giant will hand over 12 Swedish crowns ($1.44) for each share of Wayfinder, which traded above 13 Swedish crowns back in January. The pairing makes a ton of sense, since Vodafone can use Wayfinder’s GPS technology to offer location-based services. Wayfinder currently has some 2.5 million subscribers.

Given the beaten-down equity markets across the globe, we expect deals like this to be much more prevalent in 2009. The reason? Shareholders have been burned too many times this year by corporate boards that reject offers, saying a bid ‘undervalues’ the company, only to see their share price get clubbed for months on end. (For more details on that, just ask any Yahoo shareholder.)

Although valuations in the private market typically lag those in the public market, the ‘correction’ in how much startups will sell for next year is expected to be severe. According to our ongoing survey of corporate development officers, nine out of 10 say they expect valuations of private companies to decline in 2009. Specifically, 42% say valuations will ‘decline substantially,’ with 45% saying they will ‘decline somewhat.’

Location-based stalking?

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Nokia has been going navi-crazy lately. Last week, the Finnish conglomerate bought location-based social networking company Plazes for an estimated $30m. This comes as the company is wrapping up the largest acquisition in its history – the $8.1bn purchase of Navteq. We believe this is just the beginning for Nokia and others in the excessively hyped mobile location-based services (LBS) space. The question arising from this acquisition, as well as Vodafone’s $48.7m acquisition of Zyb in May, is what these acquisitions mean for the rest of the market. One implication is already clear: GPS technology has been commodified. (Just ask shareholders of Garmin, who have seen the stock skid to a two-year low.) With this technology popping up on dozens of devices, we expect hardware vendors to be even more active in snapping up LBS startups.

Nokia plans to roll Plazes into its Nokia Maps division, which itself was formed from the acquisition of gate5 in late 2006. It is part of Nokia’s overall strategy to have GPS technology play a large role in expanding beyond just being a mobile hardware company. Nokia claims it will sell upward of 37 million GPS-enabled handsets this year alone. The approaching worldwide release of the GPS iPhone, as well as Research in Motion’s push to include the technology in most of its BlackBerry devices, make it clear why high-profile backers such as KPCB and Sequoia Capital are so excited about LBS applications.

Beyond being a simple technology purchase, however, Plazes and other future deals will likely bring another important component to the apps: users. Despite their hype and position as leaders in the space, services such as Palego’s Whrrl, Loopt and Brightkite have fewer than a million users combined. Compare that to the hundreds of millions of users that ‘traditional’ social-networking sites such as Facebook and MySpace command, and one wonders what the hype is all about. By pairing up with larger companies, however, the services get instant access to millions of users. It is the technology and expertise that rumored suitors such as Facebook, Microsoft, Google and now the mobile carriers and hardware manufacturers are interested in. With continued consolidation, the fear of being left behind in a potentially important market will drive many to acquire first and ask questions later. Nokia might have just lit the fire in the M&A race to dominate the LBS market.

Seven signs of a consolidating LBS industry

Announced Acquirer Target Deal value
June 2008 Nokia Plazes $30m*
June 2008 Polaris Hughes Telematics $700m
May 2008 Vodafone Zyb $48.7m
October 2007 Nokia Navteq $8.1bn
July 2007 TomTom Tele Atlas $2.8bn
July 2007 Springbank Resources Location Based Technologies (fka PocketFinder) $50m
August 2006 Nokia gate5 $250m*

*estimated, Source: The 451 M&A KnowledgeBase