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Vodafone jumps back into acquisitions ring

June 14th, 2013 by Chris St Cartmail

Vodafone appears to have licked its wounds over previous acquisition problems and is now preparing to get back into the ring.

The company is looking into buying up Kabel Deutschland in a €7 billion deal that would see the mobile provider absorb the cable operator.

The purchase makes clear sense. It's beyond time for the big telecoms companies to be diversifying into bundled communications services, such as TV and broadband. But Vodafone has had a few scares in the past that saw it put the brakes on its acquisition strategy.

Back in 2000, the business conducted a $183 billion takeover of Mannesmann of Germany. This was the height of the telecom boom and the takeover is still the biggest hostile, cross-border bid in history.

Unfortunately, just five years later, Vodafone announced to its investors that it would take a goodwill charge of £28 billion, predominantly relating to the Mannesmann deal, signalling that the firm significantly overpaid for the asset.

Things didn't go much smoother for Vodafone when it agreed to a $10.9 billion acquisition in a controlling stake in Hutchison Essar, the fourth-largest mobile phone operator in India.

India began chasing Vodafone in the wake of the deal for $2.6 billion in tax that it argued is due on capital gains made under the Indian firm's previous owners. While Vodafone eventually won in 2012, the Indian government reopened the case again in May following legislative changes.

Strong competition within the Indian market also plagued this deal and Vodafone took a £2.3 billion writedown on its Indian business in its 2009-10 results, despite justifying its purchase as buying into the world's fastest growing mobile market.

Hopefully Vodafone has learned from its past mistakes and will make its acquisition of Kabel a successful one. As the third-largest UK-led deal in the telecoms sector on record, it better work hard to ensure it maintains its investors' faith and makes the deal work to its advantage.