17th Mar 2006 08:37
Vodafone Group Plc17 March 2006 17 March 2006 SALE OF VODAFONE JAPAN £6 BILLION RETURN OF CASH Vodafone Group today announces an agreement to sell its 97.68% interest inVodafone Japan to SoftBank. The sale values Vodafone Japan at an EnterpriseValue of approximately Y1.8 trillion (£8.9 billion) of which £6.8 billion willbe received in cash on closing. Subsequently, Vodafone will distribute £6billion of cash to shareholders. Arun Sarin, Chief Executive of Vodafone, commented: "I am pleased to announce this transaction which represents a good outcome forVodafone. It is at an attractive price, will result in a £6 billion distributionof capital to shareholders and is enhancing to adjusted earnings per share. The Board has arrived at the decision to withdraw our capital from the Japanesemarket based on several key criteria. It has become increasingly clear that the greatest operational benefits comefrom strong local and regional scale. We seek to deploy capital only where wecan generate superior returns for our shareholders in markets that offer astrong local position. In the case of Japan, we have been making progress on the turnaround in recentmonths. However given the relative competitive position of the business, thereduced prospects for superior long term returns and a good offer from SoftBank,the Board took the decision to sell. I would like to pay tribute to the management and employees of Vodafone Japan.They have made considerable progress in turning the business around. I ampleased that with the on-going relationship with SoftBank, one of the leadingtelecommunications and media companies in Japan, we will continue to benefitfrom insights in the Japanese market". Highlights of the deal * Whilst the nominal enterprise value derived from the cash proceeds and the face value of the non-cash instruments is Y2.0 trillion (£9.8 billion), Vodafone estimates that the fair value of the transaction on an Enterprise Value basis is Y1.8 trillion (£8.9 billion) * SoftBank intends to acquire 100% of the common equity of Vodafone Japan through a wholly owned SoftBank subsidiary ("Bidco") * As a result of the transaction, Vodafone will receive three principal components of value: - Approximately £6.8 billion of cash payable on closing - Preferred shares in Bidco with a face value of Y300 billion (£1.5 billion) carrying zero dividend. The preferred shares will be redeemable at Bidco's option. After June 2013 the preferred shares will carry a coupon of 12% - A subordinated loan with a face value of Y100 billion (£0.5 billion) repayable to Vodafone. This loan will be subordinated to Bidco's acquisition debt, carries a coupon of 5% and is repayable after 30 September 2013 - Vodafone estimates the combined fair value of the preferred shares and the subordinated loan is approximately £1.1 billion * In addition Vodafone has been granted warrants with the right to subscribe to equity representing 10% of Bidco exercisable after 31 March 2013 subject to certain minimum cumulative levels of EBITDA being generated between 1 April 2006 and 31 March 2013 * Vodafone presently intends to retain the preferred shares and the warrants in the short to medium term * SoftBank will assume approximately £0.8 billion of external debt and other liabilities outstanding from Vodafone Japan * The preferred shares confer the right for Vodafone to appoint one director to the Boards of both Bidco and Vodafone K.K. * Vodafone and SoftBank have entered into discussions regarding the formation of a joint working relationship involving participation in the supply and distribution of data and content. The purpose of the relationship is also to provide knowledge and information sharing between the two parties and to ensure that Vodafone continues to have access to the ongoing technological and service developments in the mobile industry in Japan Use of Proceeds Vodafone will make a distribution of £6 billion, equivalent to around 10 penceper share, to shareholders following closing of the transaction. Details of theprecise method of distribution will be released at the preliminary results inMay. Vodafone intends to complete its existing £6.5 billion buyback programmefor the year ending 31 March 2006 and will update the market further on itsdistribution policy in May. Financial Impact Vodafone expects that the transaction and the return of capital will not impactVodafone's credit ratings. Vodafone expects that the transaction and the return of capital together will beenhancing to adjusted earnings per share. Under IFRS, Vodafone will record an impairment charge of approximately £4.9billion in its results for the year ending 31 March 2006 in respect of itsinterest in Vodafone Japan. On completion of the disposal of Vodafone Japan, aprofit or loss on disposal will be recognised as the difference between thefinal sale proceeds less costs to sell and the carrying value at the date ofdisposal. The profit or loss on disposal will include, among other items, thecumulative exchange differences in respect of Vodafone Japan previouslyrecognised in equity from 1 April 2004 through to completion. Under US GAAP,Vodafone expects the disposal of its interest in Vodafone Japan to result in asignificant loss that will be recorded within its results for the year ending 31March 2006. Vodafone now expects to record an impairment charge in the second half of theyear ending 31 March 2006 at the upper end of the £23 billion to £28 billionrange indicated on 27 February 2006. The impairment charge in respect ofVodafone Japan will be classified within discontinued operations in the Group'sincome statement. Conditions to the transaction The transaction will be effected through a take-over bid. Under the terms of the agreement SoftBank has an obligation to launch atake-over bid for Vodafone Japan. This obligation is not subject to any materialconditions. Should SoftBank fail to finalise its financing and launch thetake-over bid by 4 April 2006, it would be liable to pay liquidated damages ofY60 billion (£0.3 billion). Vodafone is legally obliged to sell its shares in tothe bid. Vodafone expects the transaction to complete in the first quarter of thefinancial year ending 31 March 2007. Restated Guidance for the years ending 31 March 2006 and 2007 There are no underlying changes to the Group's outlook statements. As a result of the disposal, Vodafone Japan will be classified as a discontinuedoperation. The net financial result for Vodafone Japan for the current andprevious financial years, together with the impairment charge, will be shown asa single line item in the Group's income statement and will be excluded from theGroup's adjusted performance reporting measures. The Group's cash flow statementwill continue to include cash flows from Vodafone Japan, with separatesummarised disclosure of the cash flows from Vodafone Japan for the current andprevious financial years. The Group's organic growth metrics will also be revised to reflect the disposal.Accordingly, Vodafone is restating its outlook for the years ending 31 March2006 and 2007 to reflect the impact of the sale of Vodafone Japan as follows. Previous outlook including Restated outlook excluding Vodafone Japan Vodafone Japan--------------- --------------------------- ---------------------------- Year ending 31 March 2006 Organic growth in In the middle of the 6% to In the 8% to 9% rangeproportionate 9% rangemobile revenue Organic Lower end of flat to 1 Higher end of flat to 1proportionate percentage point lower percentage point lower rangemobile EBITDA range than previous year than previous yearmargin Capitalised fixed In the £5.0 billion to £5.4 In the £3.8 billion to £4.2asset additions billion range billion range Free cash flow In the £6.5 billion to £7.0 In the £5.8 billion to £6.3 billion range billion range --------------- --------------------------- ---------------------------- Year ending 31 March 2007 Organic growth In the 5% to 6.5% range In the 5% to 6.5% rangein proportionatemobile revenue Organic Around 1 percentage point Around 1 percentage pointproportionate lower than previous year, lower than previous yearmobile EBITDA excluding Japanmargin --------------- --------------------------- ---------------------------- The Group will provide outlook information for the year ending 31 March 2007 forcapitalised fixed asset additions and free cash flow on 30 May 2006. - ends - For further information: Vodafone Group Investor Relations Media RelationsTelephone: +44 (0) 1635 664447 Telephone: +44 (0) 1635 664444 Notes to Editors About Vodafone Vodafone is the world's leading mobile telecommunications group with equityinterests in 27 countries across 5 continents with 179.3 million proportionatecustomers worldwide as at 31 December 2005 as well as 32 partner networks. Forfurther information, please visit www.vodafone.com. About Vodafone Japan Vodafone Japan is defined as Vodafone K.K. It is the third largest mobile phoneoperator in Japan. As at 30 September 2005, Vodafone Japan had total assets of£6.2 billion under IFRS excluding goodwill and acquired intangible fixed assets.For the year to 31 March 2005, Vodafone Japan had pre-tax profit of £0.7 billionunder IFRS. For further information, please visit www.vodafone.jp. About SoftBank SoftBank is one of the leading Japanese telecommunications and media companieswith operations in Broadband, Fixed Line Telecommunications, e-Commerce,Internet, Broadmedia, Technology Services, Media and Marketing and Otherbusinesses. SoftBank is listed on the Tokyo Stock Exchange and had a marketcapitalisation of approximately US$32.8 billion at 28 February 2006. MasayoshiSon is the founder, President and Chief Executive Officer. For furtherinformation, please visit www.softbank.co.jp. Other For illustrative purposes an exchange rate of Y205:£1 has been used. Adjusted earnings per share represent earnings per share under IFRS before theresults of discontinued operations and items not reflecting underlying businessperformance. This press release contains "forward-looking statements". In particular, suchforward-looking statements include statements with respect to our expectationsrelated to the sale of Vodafone Japan to SoftBank, including the amount and typeof consideration to be received in connection with such sale, our use ofproceeds from the sale of Vodafone Japan, the financial impact on Vodafone ofthe sale of Vodafone Japan, including the effect on our credit ratings andadjusted earnings per share and the amount and timing of impairment charges tobe recorded during the year ending 31 March 2006, and the formation of a jointventure between Vodafone and SoftBank, as well as statements with respect toVodafone's restated guidance or outlook for the years ending 31 March 2006 and2007. By their nature, forward-looking statements are inherently predictive,speculative and involve risk and uncertainty because they relate to events anddepend on circumstances that will occur in the future. There are a number offactors that could cause actual results and developments to differ materiallyfrom those expressed or implied by these forward-looking statements. Inparticular, the sale of Vodafone Japan to SoftBank is subject to conditionstypical in transactions of this nature, including SoftBank securing sufficientfinancing for the transaction. In addition, some the factors which may cause ouractual results to differ from forward-looking statements related to our outlookcan be found by referring to the information contained under the heading"Forward Looking Statements" in our interim results announcement for the sixmonths to 30 September 2005 and under the heading "Risk Factors" in our AnnualReport for the year ended 31 March 2005. The interim results announcement andour Annual Report can be found on our website (www.vodafone.com). This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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