Vodafone in £1.8bn move to run Japan Telecom

The mobile phone operator Vodafone yesterday launched an agreed cash tender offer worth £1.8bn for up to 21.7 per cent of Japan Telecom, taking its total investment in the business and its divisions to £7.8bn.

The deal, which Vodafone is financing from its existing cash resources, will give it control of Japan Telecom, taking its stake up to 66.7 per cent from 45 per cent. Its economic interest in Japan Telecom's J-Phone mobile phone operations rises to 69.7 per cent from 60 per cent.

Sir Christopher Gent, Vodafone's chief executive, said he believed Japan was "one of the most important and exciting wireless markets in the world" with higher growth potential than that of Western Europe and market penetration of 51 per cent against an average of approximately 68 per cent in Western Europe. Furthermore, Sir Christopher said the purchase gave Vodafone greater exposure to the development of third generation, or 3G, mobile phone services in Japan.

Vodafone, which first took a stake in Japan Telecom last December at 520,000 yen a share, went on to buy AT&T's interests and BT's stakes at ¥492,000 a share and ¥473,000 a share respectively. Yesterday's tender offer was priced at ¥450,000 a share. Ruling out the acquisition of further shares in Japan Telecom, Sir Christopher said his immediate focus would be on improving the business operating performance, which was likely to involve a reduction in the number of employees. Vodafone is targeting J-Phone to reach Ebitda [earnings before interest, tax, depreciation and amortisation] margins of 30 per cent by the end of 2005.

Consequently, he said the company had no plans to sell off its fixed-line telecoms assets or float off the J-Phone group until the restructuring had been completed. After absorbing some £8.3bn of debt as a result of the deal, Vodafone's debt will almost double to around the £16bn level. Credit rating agencies, however, affirmed their ratings on Vodafone yesterday.