Vodafone buys its second Greek fixed line operator in two months

The latest in Vodafone’s string of acquisitions of wireline operators has been announced in Greece, where the UK-based multinational will buy Cyta Hellas for €118 million ($145 million), its second broadband purchase in the country in two months – if the European competition authorities clear a deal, that will reduce the market to just three operators.

The EU has often been hostile to such acquisitions, as Hutchison Three found when its bid for O2 UK was blocked because it would reduce the UK to three mobile operators. Such decisions tend to ignore the fact that the real market advantage now lies in fixed/mobile and quad play services, so in the UK, BT’s purchase of leading MNO EE, which was allowed, has created far more risk of reduced competition than a merger of two smaller mobile players.

Vodafone has spent the past few years trying to get away from the mobile-only model which was once its crowning glory, buying wireline players in Germany (Kabel Deutschland), the UK (C&W), Spain and other countries, as well as forming a joint venture with Liberty Global in The Netherlands. Cyta Hellas, which was been up for sale since late 2016, will bring 300,000 broadband customers to add to Vodafone’s existing 643,000, and more importantly, will extend the larger firm’s wireline footprint, including a modern fiber build-out in some areas.

On the mobile side, Cyta has a small business with 40,000 users, while Vodafone had 5.5 million mobile users at the end of September. Although Cyta has never made a profit, it was understood to have attracted interest from other players too, notably another local operator, Wind Hellas, and from PCCW of Hong Kong.

Vodafone Hellas made €440 million ($540 million) in revenues in the six months to September, and €56 million ($69 million) in adjusted operating profit. Revenues were up 2%.

In November, it paid €72.7 million ($90.5 million) for a controlling 72.7% stake in Hellas Online, its first step into the broadband business in Greece. That deal values Hellas at €100 million ($124.4 million) and is equivalent to an enterprise value of €311 million ($386.9 million) including adjusted net debt of €211 million ($262.5 million). The company has about 519,000 customers, an 11% share of the Greek market, which has struggled in recent years because of the economic crash in the country.

Vodafone had a track record of cooperation with Hellas Online going back to 2009, when it took an 18.5% stake in the fixed line operator, in the early days of its strategy to become a converged provider in Europe. The operator says it expects to benefit from cost reductions and capex synergies to the tune of €24 million a year, before integration costs, by the third full year of the merger. That would equate to a net present value of about €135 million after integration costs, said the operator. The main savings will come from sharing network and IT infrastructure, from rationalizing overlapping functions, and from reduced costs in marketing and billing.