Thursday, March 16, 2006

Groups Bid for Vodafone Japan

The RED HERRING reports that "two private equity firms from the United States, Cerberus Capital Management and Providence Equity Partners, are seeking to acquire the British telecommunications giant Vodafone’s Japanese unit for about $15 billion."According to the article, the "deal could be the largest leveraged buyout ever in Asia, rivaling a similar bid from Japanese Internet service provider SoftBank."

The two firms are offering an all-cash deal as opposed to Softbank, which includes stock.

Gerhard Fasol at EuroTechnology Japan said, "The challenge with Vodafone KK is the enormous size. Vodafone KK is the third-largest mobile telco in Japan, and because of Japan’s size, this is one of the largest telcos in the world."

Fasol added, "For people in Europe, it looks as if Germany is Vodafone’s largest market, but this is not so; it is Japan. Therefore turning this around is a very huge challenge.”

Fasol pointed out that "Vodafone Japan KK has been losing market share for about four years, and other problems have accumulated. He said, "The main problem is that even after a sale or LBO, large investments in infrastructure are necessary."

Other firms might join the bidding and the stakes might go higher. Fasol believed the "overall deal could be far more complex than a straight cash sale." He added, "I could well imagine a solution where all participate, including SoftBank and the private equity firms. SoftBank brings a lot to the table, but they are clearly stretching putting up all this cash."

Another possible scenario is a "leveraged buyout of the entire Vodafone organization." Credit Suisse analysts Justin Funnell, Chris Legg, and Paul Sidney recently wrote in a research note that "Such a deal in concept is enticing, with potential buyers for a range of assets, including Japan, [Verizon Wireless], Australia, Switzerland, Belgium, and possibly France. There would seem on paper sufficient upside to potentially persuade a boardroom that has been in flux of late to accept a cash offer."

The analysts speculated that "a bidding group would need to raise £92 billion ($162 billion) of sub-investment grade debt to do such an LBO."