Vodafone Mulls Over ONO Buyout

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Vodafone Group plc (VOD) is reportedly in talks to buy Madrid-based provider of broadband and entertainment services, ONO. According to Bloomberg reports, the company is approaching ONO SA’s major shareholders for a possible buyout. Although there is no official confirmation, Vodafone is expected to make an initial bid of €7 billion to €8 billion to win ONO board members’ approval.

ONO is slated to launch its initial public offering in early March.

Vodafone has taken growth initiatives through acquisitions and partnerships in emerging markets like Asia, Eastern Europe and Africa. The company continues to aggressively pursue acquisitions or investments in incipient markets, making itself more competitive against other European telecoms like Telef (TEF), Orange (ORAN) and Telecom Italia S.p.A. (TI).

Recent acquisitions include a 76.48% stake from Kabel Deutschland for €7.7 billion ($10.21 billion) in Sep 2013. A domination agreement with Kabel Deutschland requiring payment of €84.53 per share to remaining shareholders will strengthen Vodafone’s position in the former upon successful completion. In the same month, Vodafone reached an agreement with Verizon to sell its 45% interest in Verizon Wireless for $130 billion.

The company is reportedly in talks to buy Indian broadband and telecommunication company, Tata Teleservices Ltd.  Further, Vodafone is aiming to going solo in the country with the complete acquisition of its Indian joint venture, Vodafone India. With an increasing number of customers seeking data services, strong marketing campaign and flexible price plans, Vodafone expects continued growth in the sub continent. As a result, the company has proposed to invest $3 billion over the next two years for telecom infrastructural development in the country.

However, Vodafone’s acquisition strategy may face inevitable integration risks and unpredictable political, regulatory and legal issues. Vodafone might face difficulty in establishing its data services in the European market given spending requirements amid economic volatilities. Moreover, the financial advantage that Vodafone enjoys from being a large market player is likely to be short lived as no measure is being taken to improve pricing with the introduction of LTE in the European market.

Vodafone currently has a Zacks Rank #5 (Strong Sell).

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