A global go-getter

Vodafone grabbed a bigger piece of the global telecom pie last week by agreeing to buy BT's interests in Japan Telecom and the J-Phone Group as well as Spain's Airtel for a total of $6.93 billion.

While the deal will let BT cut its debt by $6.31 billion, it makes Vodafone the largest shareholder and sole telecom partner of Japan Telecom with 45% interest, and the J-Phone Group with 46%. The carrier's increased interest in Airtel gives Vodafone about 91.6% of the Spanish wireless operator and makes it the sole telecom shareholder. The deals are scheduled to be completed by the end of June and end of August, respectively.

Vodafone had decided it would need to issue $5 billion in new shares to finance these purchases and avoid getting stuck with too much debt as it potentially increases its ownership of J-Phone, the third-largest Japanese mobile operator. About 10 hours later, Vodafone sold the shares to institutional investors in what is being lauded as one of Europe's largest one-day equity sales.

“Unlike other carriers, Vodafone has been able to continue making acquisitions,” said Andrew Cole, principal analyst at Adventis. “This is one of the reasons that the carrier is leaving the competition behind and becoming a larger global player.”

Increased ownership in Japan Telecom's wireless subsidiary gives Vodafone an increased stake in the second-largest cellular market in the world (see figure). The carrier also will gain more exposure to 3G-service development and wireless Internet advancements in Japan.

As companies are cutting back, it is somewhat curious that Vodafone is able to maintain its global growth strategy. It could be a good business plan or it could just be good timing.

Vodafone's acquisitions seem to have come at a time when it could get lower prices than it could have a couple of years ago, said David Chamberlain, wireless research analyst at Probe Research. This is because the carrier seems to target companies that are compelled to get out of certain investments due to a high amount of debt, such as BT. Still, it helps to have a strong market position.

“The company is aggressive, and it knows what it is doing and how to take care of the systems it acquires,” Chamberlain said.

Vodafone is no stranger to global jockeying. Its contentious acquisition of Mannesmann AG last year helped it become one of the top three wireless players in Germany, as it gained an ownership stake of more than 99%.

Still, now that Vodafone has squelched BT's plans of presence in the high-growth market, analysts say it is only a matter of time before Vodafone seeks majority ownership in the Japanese carrier, which it historically has done, Cole said.

“Vodafone will take on more stake in the carrier, but probably is prepared to wait for the right time,” Cole said. The company “has a track record of successfully integrating its acquisitions, which is very rare, but even it will have to be making prudent decisions at this time.”

Besides more market share in the high-growth Japan wireless market, Vodafone's higher stake in J-Phone could position it to become a formidable competitor of NTT DoCoMo.

“[Vodafone is] not hampered by large debt or a bad balance sheet.… There is a growing distance between them and other players,” Cole said. “The company has made shrewd investments and maintains good management of them.”