VMO2's towers sale looks smaller than expected

Virgin Media O2 is reportedly close to selling a stake in its UK towers business, but it may bring in a little less money than previously predicted.

The UK operator is in exclusive talks with UK investment firm GLIL Infrastructure that could lead to it selling a chunk of Cornerstone, Reuters claimed over the weekend, citing as many as four anonymous sources.

Any resulting deal – and there are no guarantees, of course – could value the business as a whole at around the £2.5 billion mark, the newswire said. Two of its sources predict that VMO2 could ink a deal for a stake of less than 25% and announce it as early as next week.

That’s a decent windfall for VMO2; at that price a 25% stake would bring in £625 million. But it’s not quite as much as the industry expected when the telco kicked off the towers sale process earlier this year.

The operator had contacted potential bidders for a stake in Cornerstone and was ready to follow up with RFPs, a Financial Times source claimed in April, noting that it had also appointed Goldman Sachs and JPMorgan to oversee the sale process. At the time, the paper put the value of the whole of Cornerstone at £3 billion, which would have translated to a £750 million payday for VMO2 in the event of a 25% stake sale.

The macro-economic situation has taken its toll over the course of the year, so it would not come as a surprise if Cornerstone were to attract a slightly lower valuation. The important thing is that it seems investors are still interested in the business.

Important for VMO2, that is, which is in the process of upgrading its HFC network to fibre, as well as rolling out 5G. And earlier this month it was shouting about using helicopters to install mobile masts to provide 4G coverage on the island of Islay in Scotland, which presumably doesn’t come cheap, even factoring in the element of government funding that comes through the Shared Rural Network (SRN) scheme.

But as well as freeing up capital for network rollout, VMO2 clearly sees some value in staying in the passive infrastructure game too, given that it appears to be looking to sell less than half of its stake. VMO2 owns 50% of Cornerstone, the other half being in the hands of Vodafone’s passive infrastructure business Vantage Towers. The business manages 14,200 macro sites in the UK, its anchor being VMO2 and Vodafone.

It makes sense that VMO2 would be keen to retain a stake in this business, although there was a suggestion earlier in the year that it would be willing to sell out completely…for the right price. Assuming that Reuters’ sources are correct, we could get a clearer picture of what Cornerstone is worth in a matter of days.

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