Vodafone Group Plc (VOD) agreed to sell its 44% stake in SFR (their French joint venture) to Vivendi for €7.95 billion ($11.3 billion). Vivendi already owns a 56% stake in SFR.
Holding full ownership of SFR is the first priority for Vivendi. The possession of the remaining stake in SFR may boost its profits and cash flow profile, paving the path for its business growth.
From Vodafone’s standpoint, the SFR sale is the largest that it has done year to date and is the third in its strategy, announced last year, to exit minority holdings.
Vodafone, the largest revenue generating international wireless carrier, is expected to return €4.5 billion ($6.4 billion) of the net proceeds to its shareholders in the form of share buybacks. The remainder will be used to pay down debt. The deal is expected to be completed by the end of June, subject to regulatory approval.
Last year, Vodafone exited its minority holdings in the Japanese wireless operator Softbank Corporation for £3.1 billion ($5 billion) as well as its 3.2% stake in China Mobile (CHL) for £4.3 billion ($6.6 billion). Currently, Vodafone is reviewing more minority holdings, mulling over a sale of 25% stake in Poland’s Polkomtel and a 45% stake in Verizon Wireless, a venture between Verizon Communications (VZ) and Vodafone.
The strategy enables Vodafone to focus particularly on Europe, Africa and India through the adoption of mobile data. This new growth strategy is expected to generate annual organic service revenue growth in the range of 1% to 4% and free cash flow in the range of £6.0 billion to £7.0 billion over the next three years.
As Vodafone is in the process of selling its minority stake to focus more on growth prospects in emerging markets, we are currently maintaining our long-term Neutral rating on the stock with the Zacks #3 (Hold) Rank.
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