Vodafone sells Arcor Telematik for £713m in cash

Vodafone is to receive €1.15bn (£713m) in cash after agreeing to sell part of the network of its German Arcor business to the country's state-owned railway operator, Deutsche Bahn.

The move leaves open the way for Vodafone to float Arcor, which has Germany's second biggest fixed-line telecoms network after Deutsche Telekom. However, no decision has been made on spinning off Arcor, which came with Vodafone's takeover of Mannesmann in 2000. A flotation would be difficult in current market conditions.

After the deregulation of the telecoms market in Germany, in the mid-1990s, Arcor built a national network along Deutsche Bahn's railway lines, using the existing communications infrastructure as a base. In return, Deutsche Bahn received an 18 per cent stake in Arcor.

However, Deutsche Bahn has been concerned about losing control of its communications infrastructure, as its holding in the company would be diluted under a flotation and it had blocked Vodafone's attempt to float the business.

Under yesterday's deal, Deutsche Bahn bought 49.9 per cent of the railway-specific part of the network, called Arcor Telematik. Vodafone is expected to use proceeds from the sale to pay off some of its £17bn of debt. Deutsche Bahn has an option to buy the remainder of the business from July this year.

Deutsche Bahn remains an 18 per cent shareholder in Arcor but it will lose its special rights, including its veto rights on key decisions.

A fall in the value of Arcor was the main factor behind Vodafone's £4.5bn asset write-down in November. Telematik generated sales of €430m in 2000, accounting for 25 per cent of Arcor revenues. After yesterday's transaction, Arcor's remaining business will cover voice, data and internet services.

Earlier this month, Vodafone sold the balance of its shares in the German engineering company Atecs Mannesmann, which it also inherited as part of its takeover of Mannesmann, for £2.3bn to Siemens.

Analysts have welcomed these divestments, saying Vodafone was making positive strides to rid itself of non-core businesses and cut debt.