With another crucial move in the telecommunications sector, Virgin Media O2 has announced its decision to sell a part of its Cornerstone UK towers business to GLIL Infrastructure, an investment firm, for a whopping price of £360 million. This narrative surfaced only a few days after rumours about the same began to buzz and shortly before the company revealed its third quarter results which, it must be said, showed an impressive growth in the fixed consumer base, fibre footprint and decent financials.
When considering this turn of events, it should be acknowledged that the Cornerstone deal hasn’t quite met certain expectations within the industry. GLIL will be paying £360 million for a 16.67% stake, thereby valuing the business at a total of £2.16 billion. Earlier this year, when the sale process was initiated by VMO2, newspapers like the Financial Times estimated it closer to £3 billion while Reuters suggested it could be around £2.5 billion. Thus, it seems that while the investor interest may not have reduced considerably, the prices certainly have.
VMO2 maintains that this deal offers a multiple of 18.7x on Cornerstone’s adjusted EBITDAaL for the year leading to March 2023. Though this is indeed an alluring figure, it is still smaller than the earnings multiples that the big European towers deals secured last year. Using Deutsche Telekom’s sale of a 51% stake in its Germany and Austria towers unit as an example, which represented an earnings multiple of 27x, makes it clearer.
A large part of this comes down to the size of the stake that was sold as well as the economic pressure experienced in the meantime. Speculation earlier this year suggested that VMO2 might even be willing to completely sell the towers business if the offer was compelling enough, but it seems they are more interested in maintaining substantial presence in passive infrastructure.
Consequently, the deal leaves VMO2 holding onto 33.33% of Cornerstone, with the remaining 50% owned by Vodafone’s Vantage Towers business. In practical terms, VMO2’s half of Cornerstone will be transferred to a holding company, in which GLIL will have a 33.3% stake and the telecoms powerhouse holding onto 66.7%.
Virgin Media O2 CEO, Lutz Schüler, emphasized the advantages of this deal stating, “Selling a minority stake in Cornerstone is a logical move for us. We are partially monetising our tower infrastructure, while retaining operational and strategic co-control in a key asset as we roll out 5G to more of the country and boost 4G connectivity.”
The company even revealed positive growth for its fixed business and an extension to its 5G coverage to over 3,200 towns and cities in the recent quarter. In addition, it has announced plans to decommission its 3G network by 2025. These operational milestones were accompanied by noteworthy financial growth, documenting a revenue hike of over 7% year on year amounting to £2.77 billion and a 5.6% increase in adjusted EBITDA which totalled just over £1 billion.
Schüler further hinted that more mergers and acquisitions could be on the horizon- as the telecoms giant continues to assert its mark in the market, where they keep their economic footing and strategic planning sound, as evidenced by the recent successful acquisition of Upp.