Vodafone and Telecom Italia Group (“TIM”) (together, the "Parties") today announce the creation of an active network sharing partnership for 4G and 5G and the expansion of their existing passive sharing agreement (together, the "Network Sharing Partnership")
- The Network Sharing Partnership is expected to enable faster deployment of 5G over a wider geographic area at a lower cost and deliver net cumulative cashflow benefits to Vodafone of at least €800 million over the next 10 years
- Vodafone has also agreed to merge its passive tower infrastructure in Italy ("Vodafone Italy Towers”) into INWIT SpA ("INWIT") (the "Combination"). As part of the Combination, Vodafone1 will receive a cash consideration of €2,140 million and a 37.5% shareholding in the combined entity, which will remain listed on the Milan Stock Exchange. Based on the 30-day VWAP of the INWIT share price prior to this announcement, Vodafone's shareholding would be valued at €3,130 million, which implies an enterprise value for Vodafone Italy Towers of €5,270 million, equivalent to 24.0x 2018PF Adjusted EBITDA2
- Pro forma for the Combination, INWIT is expected to have an asset base comprising c.22,100 towers, making it the second largest listed tower operator in Europe. INWIT estimates that the Combination and Network Sharing Partnership will deliver additional EBITDA from synergies and committed services of approximately €110 million by 2026
- It is the intention of Vodafone and TIM to undertake a recapitalisation of INWIT following the Combination up to a maximum of 6.0x Net Debt / EBITDA, subject to achieving a BB+ (or equivalent) credit rating. Vodafone intends to use the cash proceeds from the Combination and any recapitalisation to retire existing debt
- Vodafone and TIM intend to retain joint control of INWIT, but over time will consider jointly reducing their respective ownership levels from 37.5% to a minimum of 25.0%
- The Combination is subject to regulatory approval as well as INWIT minority shareholders' approval, with completion anticipated during the first half of 2020
Aldo Bisio, CEO of Vodafone Italia, said:
This agreement will enable us to step up the rollout of 5G for the benefit of our customers and the community as a whole. 5G has a key role to play in modernising the country. It will provide the technology platform from which to launch innovative new services capable of making business models more efficient and improving productivity throughout the value chain, helping to build a more competitive digital economy. Network sharing reaps the benefits of 5G and at the same time reduces the impact on the environment and lowers rollout costs, allowing more investment in services for customers.
Network Sharing Partnership with TIM
Further to the announcement between the Parties on 21 February 2019, Vodafone Italia and TIM have today finalised a Network Sharing Partnership to jointly roll-out 5G infrastructure in Italy and to extend their existing passive sharing arrangements.
The Network Sharing Partnership will enable active network sharing in cities with populations of up to 100,000 people, supporting a faster deployment of 5G over a wider geographic area, at a lower cost, and with a lower environmental impact. Vodafone Italia and TIM will also implement active network sharing for their existing 2G and 4G networks, in order to support 5G active network sharing.
Furthermore, Vodafone Italia and TIM intend to upgrade their respective mobile transmission networks, adding higher capacity optical fibre cables ("Fiber-to-the-Site" or "Backhauling"). This will enable customers to benefit from 5G’s new features, such as faster speeds and low latency, and will allow both companies to operate more efficiently.
Vodafone Italia and TIM have also extended their existing passive sharing agreement, from approximately 10,000 sites today (approximately 45% of the Parties’ combined passive towers), to a nationwide agreement. The objective is to accelerate and enhance the deployment of 5G technology and use network infrastructure more efficiently, both in urban and rural areas.
Vodafone Italia and TIM will continue to roll out and operate active network infrastructure independently in Italy's biggest cities. Both companies will retain separate management of their spectrum rights, management of their network performance, control and functionality of their respective core networks, as well as development of new products and services. This will enable each company to maintain full flexibility to innovate and compete to meet the needs of their respective customers.
Combination of Vodafone Italy Towers with INWIT
Vodafone and INWIT have agreed to combine their respective tower portfolios, consolidating their c.22,100 passive towers located in Italy. The Combination is expected to enable TIM and Vodafone to achieve a faster and more effective roll-out of 5G infrastructure throughout Italy at a lower cost. INWIT will be well placed to perform strongly in the coming years, benefitting from the commitment of its two anchor tenants on existing and new towers, as well as being better placed to offer tenancies to third party operators, as the active sharing will free up further space on the infrastructure that can be used by other operators.
The Combination will be effected by way of a merger and as such, once approved by INWIT's minority shareholders, will be exempted from public tender offer obligations. Vodafone will receive cash consideration of €2,140 million3 and, following the completion of the merger, hold a total 37.5% shareholding in the combined entity.
New Master Services Agreement ("MSA")
In conjunction with the Combination and the Network Sharing Partnership, Vodafone Italia and TIM have each committed to a new MSA which will have an initial term of 8 years, with 8 year renewal periods. Vodafone Italia and TIM have also committed to each add additional points-of-presence on INWIT's towers over the next 4 years.
Under the MSA, INWIT will also be the preferred supplier of new towers for Vodafone Italia and TIM. To facilitate the effective roll-out of 5G technology, Vodafone Italia and TIM have each agreed to commit as anchor tenants on 1,900 new towers and 2,500 small cell/DAS sites to be constructed by INWIT over the next 10 years.
Financial benefits of Network Sharing Partnership and Combination
The Network Sharing Partnership is expected to deliver net cumulative cashflow benefits to Vodafone of at least €800 million over the next 10 years. The cash flow impact of the network sharing is expected to reflect modest net investment during the implementation phase over the first two years, with benefits accruing broadly in line with the roll-out of 5G thereafter. In addition, Vodafone will also indirectly benefit from its 37.5% share of the additional EBITDA generated at INWIT, which INWIT estimates will have an annual run rate from 2026 of €110 million in relation to synergies and committed services. INWIT also expects to continue to grow its business through deploying small cells, additional sites and other services for its anchor tenants and other third parties, with the ambition to achieve a further €95 million of incremental EBITDA by 2026.
Corporate governance and shareholding
Following the Combination, Vodafone and TIM will each own 37.5% of INWIT, with INWIT's existing minority shareholders owning the remaining 25%.
The Board of INWIT will comprise of 13 directors, including 5 appointees from Vodafone and 5 appointees from TIM. The appointments of Chairman, CEO and CFO will alternate between Vodafone and TIM every 3 years, with Vodafone initially having the right to appoint the Chairman and CFO, while TIM will appoint the CEO. The composition of the Board and key management positions will be announced prior to completion of the Combination.
At closing, Vodafone and TIM will enter into a shareholder agreement with a duration of 3 years which includes an initial 3-year lock-up and standstill on their shareholding, unless otherwise agreed. The lock-up provides that the Parties may reduce their shareholdings by mutual agreement during this initial lock-up period, subject to maintaining a minimum combined shareholding in excess of 50%. Over time, Vodafone and TIM each intend to jointly reduce their respective ownership levels in INWIT from 37.5% to a minimum of 25.0% (implying in excess of €1 billion of potential proceeds for Vodafone based on the 30-day VWAP and prior to the effect of any recapitalisation).
INWIT capital structure, potential recapitalisation and target distribution policy
Post completion of the Combination, it is the intention of Vodafone and TIM to undertake a recapitalisation of INWIT up to a maximum of 6.0x Net Debt / EBITDA, subject to achieving a BB+ (or equivalent) credit rating.
Following the Combination, Vodafone and TIM intend to propose an attractive dividend policy for INWIT, paying out the equivalent of at least 80% of adjusted net income for the year (adjusted for one-off and extraordinary items).
Impact on Vodafone and use of proceeds
On a pro forma basis, Vodafone Italy Towers would have generated an estimated €220 million of Adjusted EBITDA for the year ending 31 December 2018, which would be deconsolidated from Vodafone's financial statements following the Combination. Vodafone's 37.5% interest in INWIT will be accounted for under the equity method (increasing associate income and dividends).
Vodafone intends to use the proceeds from the Combination, any capital return and any subsequent sell down of its shareholding in INWIT to retire existing debt.