Deals and IPOs

Vodafone to buy Ono for $10 billion

Anne-Sylvaine Chassany and Dan Thomas
Daniel Berehulak | Getty Images

Vodafone has reached an agreement to purchase Spanish cable company Ono, in a deal valuing Spain's second-largest provider of broadband internet, pay television and fixed telephony services at €7.2bn (approximately $10 billion), including debt.

The deal, which is expected to be announced on Monday, ends plans for Ono to list in Madrid, according to people with knowledge of the negotiations.

(Read more: Vodafone CEO:We want to become 'Unilever of telecom')

Vodafone declined to comment. Ono's shareholders, private equity groups Providence Equity Partners, Thomas H Lee Partners, CCMP Capital Advisors and Quadrangle Capital, also declined to comment.

The purchase will boost Vodafone's mobile business in Spain with fixed line services and pay-TV. It will allow it to cut the costs of carrying its calls around the country. It is the British telecoms group's second acquisition in six months. In September, it agreed to buy a controlling stake in German cable operator Kabel Deutschland. The Ono deal will also complement Vodafone's agreement with French telecoms operator Orange to build out fibre networks in Spain.

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While Ono said last week it would press ahead with an IPO, discussions between Ono's shareholders and Vodafone intensified over the weekend. The British group was granted access to Ono's financial books earlier this month when it gave an indication of a €7.2bn offer price, which was subject to due diligence.

The deal's price represents 10.5 times Ono's earnings before interest, tax, depreciation and amortisation. Last week, the company said that ebitda had dropped almost 9 per cent to €686m last year, while net debt had fallen almost 3 per cent to €3.3bn, reflecting a ratio to ebitda of almost five times.

Ono's private equity owners acquired a controlling stake in the cable company in November 2005, as part of a €4.5bn financing deal that included a €1bn capital increase and a debt package.

Buyout fund managers, which typically seek to sell their portfolio companies after three to five years of ownership, have had to hold many assets bought before the financial crisis longer than expected.

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But signs of an economic rebound in Europe and buoyant equity markets are enabling them to accelerate the pace of disposals, notably through initial public offerings.

Europe's IPO market is on track for its busiest start to the year since the financial crisis, fuelled by a wave of private equity-backed companies seeking to capitalise on demand from investors hungry for more exposure to the region.

A successful flotation for Numericable in France last year had suggested that investors were willing to pay a high price for ownership of European cable businesses, as customer numbers climb and internet services are adopted alongside the traditional TV platforms.

But many IPO hopefuls are also potential targets for companies back on the acquisition trail or other buyout groups flush with cash.