Vodafone (VOD) has entered a cable wholesale agreement with Telefónica Deutschland, as it works to push its Liberty Global deal over the line amid competition concerns.
The agreement in question will allow Telefónica DE to offer high-speed broadband services to consumers across Vodafone’s and Liberty’s ‘Unitymedia’ combined cable network in Germany. The contract has been signed “on a long-term basis”.
Back in May 2018, Vodafone announced its €18.4bn (£15.2bn) acquisition of Liberty’s operations in Germany, the Czech Republic, Hungary and Romania. At the time, the group cited its creation of a “converged national challenger to the dominant incumbent in Germany”.
But completion is dependent on a thumbs up from the European Commission (EC) – the body that opened an in-depth investigation into Vodafone’s proposed acquisition last December. Commissioner Margrethe Vestager – in charge of competition policy – explained that the probe “aims to ensure” the deal “will not lead to higher prices, less choice and reduced innovation in telecoms and TV services for consumers".
The Telefónica DE agreement could help to grease the wheels. It forms part of a “remedy package” that Vodafone has submitted to the EC for consideration, serving to “enhance broadband competition in Germany to the benefit of consumers and broadcasters”. The EC now plans to undertake market testing on the package during May 2019. A decision is expected in July.
This news came just a week before the release of Vodafone’s numbers for the year to March 2019. And with the shares offering a towering yield of over 9 per cent, the dividend is likely to take centre stage. Numis's John Karidis points to two questions going into these results: will the dividend be cut? And what will Vodafone’s guidance be for adjusted cash profit growth in the fiscal 2020 year?
Mr Karidis said the fall in the share price over recent months indicated market expectations of a dividend cut. "I think the key conclusion is that investors are more than anything worried that Vodafone will be overleveraged, overindebted, immediately after it completes the Liberty transaction," he said. However, on the plus side, Vodafone expects the transaction to be free-cash-flow-accretive from the first year post-completion, he added.
Mr Karidis is not currently forecasting a reduction in the dividend, although a cut could boost the share price, he said, given a discount has been applied on the assumption of one.
