A logo sits on an employee's polo shirt inside a Grupo Corporativo ONO SA store in Parquesur shopping mall, operated by Unibail-Rodamco SE, in Leganes, Spain, on Tuesday, Nov. 19, 2013. Vodafone Group Plc's $30 billion cash hoard is fueling speculation that it may purchase Grupo Corporativo ONO SA, causing the perceived creditworthiness of the Spanish cable operator to increase more than any other company in Europe

Vodafone has confirmed the acquisition of Spanish cable company Ono for €7.2bn in the next move of a broader strategy to offer telephone, television and internet services to its European customers. 

The deal, which includes about €3.3bn in debt, was agreed over the weekend after months of talks between Vodafone and the private equity owners of Ono such as Providence Equity Partners, Thomas H Lee Partners, CCMP Capital Advisors and Quadrangle Capital.

Vittorio Colao, Vodafone chief executive, said on Monday: “The combination of Vodafone and Ono creates a leading integrated communications provider in Spain and represents an attractive value creation opportunity for Vodafone.”

The deal, which will be funded from existing cash and debt, marks the latest move in Vodafone's strategy to add fixed-line networks to augment its mobile services.

Ono is Spain’s second-largest provider of broadband internet, pay television and fixed telephone services, which means that Vodafone can add extra products to bundled tariffs as well as reduce the cost of carrying its calls around the country. 

Vodafone estimates that about €1bn of revenue synergies given the opportunity to increase the various products and services by combining distribution, marketing and cross-selling.

Mr Colao added: “Demand for unified communications products and services has increased significantly over the past few years in Spain, and this transaction, together with our fibre-to-the-home build programme, will accelerate our ability to offer best-in-class propositions in the Spanish market.”

The acquisition price of Ono reflects a multiple of 7.5 times earnings for 2013 and 10.4 times 2013 free cash flow after adjustments for cost and capital expenditure. 

Vodafone said that the acquisition will be accretive to adjusted earnings per share and free cash flow per share after cost and capital expenditure and before integration costs from the first full year after completion.

Vodafone expects to achieve annual cost and capital expenditure synergies of about €240m before integration costs by the fourth year, equivalent to about €2bn after integration costs.

The deal ends plans for Ono to list in Madrid, which until the weekend had been the main focus of the management of the company given a waiting game by its owners for the right price.

Vodafone has submitted several non-binding offers under €7bn since Christmas, but the private equity owners wanted a price that matched the likely value of an initial public offering according to those close to negotiations. 

The purchase 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.

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 this month when it gave an indication of a €7.2bn offer price, which was subject to due diligence.

Last week, Ono said that earnings before interest, taxation, depreciation and amortisation 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.

Morgan Stanley advised Vodafone. The board of Vodafone also received advice from Robertson Robey Associates, while Deutsche Bank, UBS, JPMorgan and Bank of America Merrill Lynch advised Ono and its shareholders.

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