Vodafone pays £4.8bn for BT stakes

Vodafone will consider buying more of Japan Telecom

Vodafone has paid a higher than expected £4.8bn for British Telecom's stakes in Japan Telecom and Spanish mobile phone group Airtel.

The deal was part of BT's urgent efforts to cut its huge £30bn mountain of debt - but also appears to signal an abrupt ending of its ambitions as a global force.

Vodafone paid £3.7bn for BT's 20% stake in Japan's number three telecoms firm and took 17.8% of Airtel, of which it already owns 73%, for another £1.1bn.

To pay for the deal, Vodafone said it would place £3bn of new shares on Wednesday.

Vodafone shares shed 3.7% to 198.5 pence on the news as fears emerged that it would overstretch itself financially as BT had done.

Ring up the deals

The deal marks Vodafone's third sizeable acquisition of Japan Telecom shares since December.

The 20% stake will lift Vodafone's holding in Japan Telecom to 45% and almost gives it control of the prized mobile phone subsidiary, J-Phone.

Koichi Sakata, Chairman of Japan Telecom, and Chris Gent, Chief Executive of Vodafone, shake on the deal

Vodafone's chief executive Chris Gent said the company might consider further increases to its holding in Japan Telecom and J-Phone.

"We like the business and we have taken the opportunity to increase our positions as and when opportunities have arisen," Gent said at a news conference in Tokyo.

Japan Telecom, and its wireless unit J-Phone, is highly regarded by telecoms companies partly because Japan is an important testing ground for third-generation (3G) mobile phone technology.

"We consider Japan as one of the most exciting telecom markets in the world," he said, adding the country's growth potential is even higher than the US and western Europe.

Earlier this week Vodafone bought US telecoms giant AT&T's 10% Japan Telecom stake for $1.35bn in cash.

The acquisition of BT's stake in Airtel increases Vodafone's holding to approximately 91.6% and makes it the sole telecom shareholder in Spain's second largest mobile phone operator, the company said.

BT sells

BT is under intense pressure from shareholders to reduce its debts and to do so in such a way that limits destruction of shareholder value.

Chief executive Sir Peter Bonfield insisted that the deal was not a "fire sale", and was focused on value.

This is a very, very good return for our shareholders.

Sir Peter Bonfield
Chief Executive
British Telecom

"This deal gives us fantastic returns. In Japan (we achieved) three times our original investment, making a profit of £2bn in less than five years and Spain five times the original investment in six years," he told journalists during a conference call.

"This is a very, very good return for our shareholders."

Analysts said the Japan Telecom sale was, on the face of it, a good deal for BT, which bought the stake for £1.2bn two years ago.

The company, which has a debt mountain of £30bn, said the two deals were worth £4.8bn and would reduce its debt by £4.4bn.

Plans to float the wireless division, which includes prime assets such as UK operator BT Cellnet, have been put on the backburner because of depressed market conditions.

But stakes in international operators have come to be regarded as expendable.

Shares in BT gained another 0.9% to 604.5p on the news after soaring on Tuesday.