Vodafone will sell its Hungarian operations to state-backed organizations for $1.8 billion
Deal will increase PM Viktor Orbán's influence in the industry
In a move which will simplify its global operations, enable it to pay off debt, and enable President Viktor Orbán increase his influence inside the industry, Vodafone had agreed to sell the Hungarian company for $1.8 billion.
The UK-based telecoms company announced on Monday that it has reached a non-binding deal to sell all of its assets to Corvinus Zrt, an Hungarian state holding company, and 4iG, a vast holding company with strong ties to a Budapest government.
Since January, when it became known that Cevian Capital, 's biggest activist investor, had acquired a stake in Vodafone and was pressing for the streamlining of the group's complex operations and the sale of underperforming assets, Vodafone's strategy has come under criticism.
The CEO of Vodafone, Nick Read, has made no secret of his desire to grow and explore acquisitions and mergers in significant areas including Spain, Portugal, Italy, and the UK. Its budget deficit, which was €41.6 billion in March, could be reduced with the additional funds from the selling of its Hungarian operation.
The union of Vodafone Hungary with 4iG will result in the country's sec mobile and fixed operator, giving it more of a chance to challenge the dominant Magyar Telekom, a division of Deutsche Telekom.
According to Read, the combined company will boost competition and have better access to funding to further Hungary's digitalization.
The longest-serving head of state in Europe, Orbán, who earlier this year won a fourth straight landslide victory, has increased his influence in the Hungarian corporate community.
In his attempts to increase his power in the telecoms industry, 4iG has played a significant role. In addition to providing competitive market services, the company stated last year that its goal was to "build a telecom infrastructure operator that can appropriately represent strategic interests in the sector."
According to a statement by the minister of economic development, Márton Nagy, "Governments have maintained a conspicuous goal of considerably expanding the amount of Hungarian ownership in important enterprises, preferably to a majority."
This government objective has already been accomplished in the banking, energy, and media industries. Now that a Hungarian company has the support of state ownership, it may become a significant player inside the telecom sector as well.
Again for 12-month period ending in March, Vodafone Hungary's normalized income before interest, tax, depreciation, and amortization were Ft715 billion ($1.8 billion), which is more than 9 times the transaction price. The operations of Vodafone's services division, VOIS, in Hungary will not change as a result of the purchase.
Last month, Vodafone stated that it was on pace to meet its full-year target, anticipating ebitda to be within the range of €15 billion and €15.5 billion. From €11.1bn per year ago, the total revenue growth in the most recent quarter increased marginally to €11.3bn.
One of the company's largest investments in more than a decade, 9.8% of Vodafone was purchased by Emirates Telecommunications Group in May for around $4.4 billion. The state-controlled investment firm, whose top executive held prominent roles at Vodafone for 17 years, expressed support for the direction and leadership of the business.
The company's share price was unchanged in early Monday morning trade but has increased 6% annually to 122p.
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