Chosen as one of the Top 3 proposals in M&A Competition and presented to a panel of
distinguished professionals from different IBs such as Citi, Barclays, Rothschild and AHV Associates it the NFW Conference. The conference is organised by Imperial College Finance Society.
There was a limit of 10-slides at maximum for M&A proposal. This limited us to offer other M&A options for Vodafone. This presentation was prepared in less than two days and team members were randomly selected.
Vodafone’s potential acquisition of KT Corp by Geri Cupi Mattia Zarulli Tarah Bouaricha at New Financial Worlds Conference - M&A Competition Finals
1. New Financial Worlds Conference
M&A Competition Finals
.
Vodafone’s potential acquisition of KT Corp
December 15, 2012
• Tarah Bouaricha
• Geri Cupi
• Mattia Zarulli
2. Vodafone Overview | Vodafone is one of the world‟s leading providers
of mobile telecommunication services
Company Overview Challenges
• One of the world‟s leading providers of mobile • Intense competition could reduce market share
telecom services and revenues
• The most valuable telecom brand in the world • Weak economic outlook for European telecom
(valued at approximately $30 bn by Brand market
Finance) • Mature European mobile markets may impact
• Global reach: equity interest in +30 countries and future growth prospects
partners in +40 countries
• Serving over 404 million customers
• A leader in the global M2M services market
2
3. Vodafone Key Financials | Vodafone‟s financials show over £8 bn. in
cash and a Debt/EBITDA ratio of 2.6x
Income Statement Balance Sheet
March 31st 2012A March 31st 2012A
Revenues 46,417.0 Cash & Equivalents 8,286.0
Cost of Goods Sold 31,546.0 A/Receivable 7,218.0
Gross Profit 14,871.0 Inventory 486.0
Other Current Assets 4,035.0
as % of Revenues 32.0%
Total Current Assets 20,025.0
Operating Expenses 8,312.0
EBITDA 6,559.0 PP&E, Net 18,655.0
as % of Revenues 14.1% Other L-T Assets 100,896.0
Total Assets 139,576.0
Depn & Amortization -
as % of Revenues 0.0% A/Payable 4,526.0
EBIT 6,559.0 S-T Debt 6,258.0
as % of Revenues 14.1% Other Current Liabilities 13,241.0
Net Income 6,597.0 Total Current Liabilities 24,025.0
as % of Revenues 14.2% L-T Debt 28,362.0
Debt
Other L-T Liabilities 8,987.0
35,515 Total Liabilities 61,374.0
(33%)
Common Stock 3,866.0
Min. Additional Paid In Capital 154,123.0
Interest
1,037 (1%) Retained Earnings -84,184.0
Treasury Stock -7,841.0
Equity Minority Interest 1,267.0
69,435 Comprehensive Inc. and Other 10,971.0
(66%)
Total Equity 78,202.0
Total Libailities & Equity 139,576.0
Vodafone Capital Structure
3
4. KT Corp. Overview | KT Corp is the leading telecommunication, data
provider and broadband internet access provider in Korea
Company Overview Share Price Movement
• The leading telecommunication, data provider and
broadband internet access provider in Korea
• The second largest telecommunications service
provider: 16.5 million subscribers as of FY2011,
representing a market share of 31.5%
• Robust network capabilities
• Other services include: IPTV, Leased line, Data
communication, Satellite, Credit cards, IT and
Cloud computing
• In 2011, it launched its M2M communication
technologies
4
5. KT Corp – Key Financials | KT Corp‟s financials show good
profitability
Income Statement Balance Sheet
December 31st 2011A December 31st 2011A
Revenues 12,697.1 Cash & Equivalents 978.5
Cost of Goods Sold 4,878.4 A/Receivable 4,103.3
Gross Profit 7,818.7 Inventory 389.6
Other Current Assets 181.8
as % of Revenues 61.6%
Total Current Assets 5,653.2
Operating Expenses 4,970.4
EBITDA 2,848.3 PP&E, Net 8,096.7
as % of Revenues 22.4% Other L-T Assets 4,776.3
Total Assets 18,526.2
Depn & Amortization 1,708.8
as % of Revenues 13.5% A/Payable 944.3
EBIT 1,139.5 S-T Debt 1,219.8
as % of Revenues 9.0% S-T Capital Leases 26.7
Net Income 834.1 Other Current Liabilities 2,858.7
as % of Revenues 6.6% Total Current Liabilities 5,049.5
L-T Debt 5,130.9
Debt Capital Leases 52.0
6,632 (47%) Other L-T Liabilities 1,054.4
Total Liabilities 11,286.8
Min. Common Stock 903.3
Interest Additional Paid In Capital 831.6
490 (3%)
Retained Earnings 5,900.8
Equity Treasury Stock -550.6
7,126 (50%) Minority Interest 481.3
Comprehensive Inc. and Other -327.1
KT Corp Capital Structure Total Equity 7,239.3
Total Libailities & Equity 18,526.15
6. Acquisition Rationale | The acquisition of KT will allow Vodafone to
expand in Asia and act as an entrance in a technological savvy country.
1
Vittorio Colaco, Vodafone‟s Chief Executive, said “Our focus on the key growth areas of data, emerging markets
and enterprise is positioning us well in a difficult macroeconomic environment. Our commercial performance and
our ability to leverage scale continue to be strong, enabling us to gain or hold market share in most of our key
markets, and reduce the rate of margin decline”.
2
Vodafone is highly focused in the mature European
market. In order to compete with other global providers,
an expansion in Asia is necessary. In Asia, Vodafone
operates only in India and has partners in other
countries.
3
M2M market is projected to reach a value of more than
$36 billion by the end of 2016. The acquisition of KT
will allow Vodafone to expand in the fast growth market
of Asia and act as an entrance in in a technological
savvy country.
6
7. Discounted Cash Flows Analysis | The analysis results in an 1
EV of £17.5 bn. And an EqV of £11.5 bn.
2011A 2012P 2013P 2014P 2015P 2016P Terminal Value
December 31st 0 1 2 3 4 5 WACC
Revenues 12,697.1 14,131.9 15,107.0 15,862.3 16,655.4 17,488.2 17,663.1 Rf (30yr UK Govt Bond) 3.1%
Equity Risk Premium 6.3%
EBITDA 2,848.3 3,170.2 3,388.9 3,558.3 3,736.3 3,923.1 3,962.3 KT Corp. Beta 0.2
Depn & Amortization 1,708.8 1,901.9 2,033.1 2,134.8 2,241.5 2,353.6 2,377.1 Country Risk Premium 1.3%
EBIT 1,139.5 1,268.3 1,355.8 1,423.6 1,494.7 1,569.5 1,585.2 Equity Cost of Capital 5.7%
Cost of Debt 5.9%
Tax Margin 42.6% 42.6% 42.6% 42.6% 42.6% 42.6% 42.6%
Tax on EBIT 485.0 539.9 577.1 606.0 636.3 668.1 674.8 Number of Shares (mm) 243.7
NOPAT 654.5 728.4 778.7 817.6 858.5 901.4 910.4 Share Price 22.0
Market Cap 5,354.1
Depn & Amortization 1,708.8 1,901.9 2,033.1 2,134.8 2,241.5 2,353.6 2,377.1 Net Debt 5,372
Change in Working Capital (871.7) (33.9) (62.5) (48.4) (50.8) (53.4) (11.2)
CAPEX as % of Depn 110% (1,879.7) (2,092.1) (2,236.4) (2,348.3) (2,465.7) (2,589.0) (2,614.8) WACC 4.5%
Free Cash Flow 504.3 512.9 555.7 583.5 612.7 661.5
WACC 4.5%
Discount factor 0.96 0.92 0.88 0.84 0.80 0.80
PV 482.5 469.4 486.6 488.8 491.1
Terminal Value 18,769.3
PV of Terminal Value 15,043.9
Enterprise Value 17,462.3 Equity Value 11,530.1
Implied EV/Revenues 1.2x Equity Value/Share 47.3
Implied EV/EBITDA 5.5x Share Premium 115%
7
8. Trading Comparables Analysis | KT Corp.‟s peer group trades 2
at 2.0x revenues and 5.5x EBITDA
MCap and EV Valuation Multiples
Trading Comparables Market Enterprise
Country Currency
(in millions, except where noted) Cap Value EV/Revenues EV/EBITDA P/E
LG Uplus Corp. (KOSE:A032640) Korea GBP 1,852.9 4,365.0 0.7x 5.2x NM
Onse Telecom Corporation (KOSE:A036630) Korea GBP 45.3 72.7 - - -
Perusahaan Perseroan (Persero) PT
Indonesia GBP 11,278.7 12,476.6 2.5x 4.9x 14.0x
Telekomunikasi Indonesia Tbk (JKSE:TLKM)
PT Indosat Tbk (JKSE:ISAT) Indonesia GBP 2,238.1 3,483.4 2.5x 5.5x 24.6x
SK Broadband Co., Ltd. (KOSE:A033630) Korea GBP 773.3 1,487.1 1.1x 4.8x NM
Telstra Corporation Limited (ASX:TLS) USA GBP 34,533.3 42,494.3 2.6x 6.7x 15.5x
Verizon Communications Inc. (NYSE:VZ) USA GBP 79,223.1 139,623.9 2.0x 7.0x 41.4x
VimpelCom Ltd. (NYSE:VIP) USA GBP 11,091.3 26,719.5 1.9x 4.5x 18.6x
Vodafone Group Public Limited Company
UK GBP 79,433.2 108,378.2 2.4x 5.6x NM
(LSE:VOD)
Multiples Range
High 2.6x 7.0x 41.4x
Low 0.7x 4.5x 14.0x
Mean 2.0x 5.5x 22.8x
Median 2.2x 5.4x 18.6x
8
9. Transaction Comparables Analysis | The EV/EBITDA multiple 3
for Asia-Pacific telecommunication companies is, on average, 5.7x
Valuation Multiples
Target % Enterprise
Date Buyer Target Country acquired Value Curr. Sales EBITDA EBIT
Oct2012 SOFTBANK CORP. eAccess Ltd. Japan 100.0% 346,566.4 JPY 203,862.6 1.7x 45,600.8 7.6x 21,004.0 16.5x
Oct2012 Vodafone New TelstraClear New Zealand 100.0% 657.5 NZD 657.5 1.0x 149.4 4.4x 17.8 36.9x
Zealand Ltd. Limited
Oct2009 LG Uplus Corp. LG Powercom South Korea 100.0% 2,198,878.0 KRW 1,374,298.8 1.6x 372,691.2 5.9x 82,664.6 26.6x
Corporation
Nov2011 NTT DOCOMO, Inc. Philippine Long Philippines 2.1% 597,757.5 PHP 142,323.2 4.2x 83,021.9 7.2x 56,392.2 10.6x
Distance
Jun2009 NTT DOCOMO, Inc. Telephone Co., Ltd. South Korea
KT Freetel 47.0% 6,853,496.2 KRW 8,566,870.3 0.8x 1,489,890.5 4.6x 362,618.8 18.9x
Sep2010 Vodafone Group China Mobile Hong Kong 100.0% 107,578.0 GBP 44,824.2 2.4x 22,888.9 4.7x 14,941.4 7.2x
Public Limited Limited
Company
Multiples Range
High 4.2x 7.6x 36.9x
Low 0.8x 4.4x 7.2x
Mean 2.0x 5.7x 19.5x
Median 1.7x 5.3x 17.7x
9
10. Summary of Findings | Plotting together the three methodologies 4
reveals that the DCF values are in line with market multiples
EV/Revenues EV/EBITDA
DCF DCF
1.2x 5.5x
0.7x 2.6x 4.5x 7.0x
Trading Comps
0.8x 4.2x 4.4x 7.6x
Transaction Comps
1 2 3 4 5 6 7
An accretion/dilution analysis (see Appendix) reveals that an all equity acquisition would be slightly dilutive for
Vodafone. We would therefore recommend financing the acquisition of KT Corp through a combination of cash on
the balance sheet, additional debt and new equity.
10
12. KT Corp. Projected Income Statement
2011A 2012P 2013P 2014P 2015P 2016P Terminal Value
December 31st 0 1 2 3 4 5
Revenues 12,697.1 14,131.9 15,107.0 15,862.3 16,655.4 17,488.2 17,663.1
Average Historic Growth 4.0%
LTM Growth (Sep2012) 12.5%
Consensus Growth 10.1% 3.9% 2.5% 4.6%
Industry Growth (Asia-Pacific) 5.5% 5.5% 5.5% 5.5% 5.5%
Growth used in model 11.3% 6.9% 5.0% 5.0% 5.0% 1.0%
Cost of Goods Sold 4,878.4 5,429.7 5,804.3 6,094.5 6,399.2 6,719.2 6,786.4
Gross Profit 7,818.7 8,702.2 9,302.7 9,767.8 10,256.2 10,769.0 10,876.7
as % of Revenues 61.6% 61.6% 61.6% 61.6% 61.6% 61.6% 61.6%
Operating Expenses 4,970.4 5,532.1 5,913.8 6,209.5 6,519.9 6,845.9 6,914.4
EBITDA 2,848.3 3,170.2 3,388.9 3,558.3 3,736.3 3,923.1 3,962.3
EBITDA Margin used in model 22.4% 22.4% 22.4% 22.4% 22.4% 22.4% 22.4%
Depn & Amortization 1,708.8 1,901.9 2,033.1 2,134.8 2,241.5 2,353.6 2,377.1
as % of Revenues 13.5% 13.5% 13.5% 13.5% 13.5% 13.5% 13.5%
EBIT 1,139.5 1,268.3 1,355.8 1,423.6 1,494.7 1,569.5 1,585.2
as % of Revenues 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0%
13. KT Corp. Project Balance Sheet
December 31st 2011A 2012P 2013P 2014P 2015P 2016P Terminal Value
Cash & Equivalents 738.5 978.5
A/Receivable 2,952.7 4,103.3 4,567.0 4,882.1 5,126.2 5,382.5 5,651.6 5,708.2
DSO 118.0 118.0 118.0 118.0 118.0 118.0 118.0
Inventory 410.3 389.6 389.6 416.5 437.3 459.2 482.1 487.0
DIO 26.2 26.2 26.2 26.2 26.2 26.2 26.2
Other Current Assets 240.2 181.8 181.8 194.3 204.1 214.3 225.0 227.2
as % of Revenues 1.3% 1.3% 1.3% 1.3% 1.3% 1.3% 1.3%
Total Current Assets 4,341.7 5,653.2
PP&E, Net 7,736.2 8,096.7
Other L-T Assets 3,478.3 4,776.3
Total Assets 15,556.2 18,526.2
A/Payable 880.0 944.3 1,051.0 1,123.5 1,179.7 1,238.7 1,300.6 1,313.6
DPO 70.7 70.7 70.7 70.7 70.7 70.7 70.7
S-T Debt 1,572.6 1,219.8
S-T Capital Leases 19.1 26.7
Other Current Liabilities 2,080.9 2,858.7 3,181.7 3,401.3 3,571.3 3,749.9 3,937.4 3,976.8
as % of Revenues 22.5% 22.5% 22.5% 22.5% 22.5% 22.5% 22.5%
Total Current Liabilities 4,552.6 5,049.5
L-T Debt 3,845.5 5,130.9
Capital Leases 35.1 52.0
Other L-T Liabilities 567.1 1,054.4
Total Liabilities 9,000.3 11,286.8
Total Equity 6,555.8 7,239.3
Total Libailities & Equity 15,556.1 18,526.1
Working Capital 642.3 871.7 905.6 968.1 1,016.5 1,067.4 1,120.7 1,131.9
Changes in Working Capital 229.4 33.9 62.5 48.4 50.8 53.4 11.2
14. Accretion/Dilution Analysis
Vodafone Share Price 1.6
Vodafone Shares Out 49,163.4
Vodafone Net Income 6,957.0
Vodafone EPS 0.142
KT Corp NOPAT (no synergies) 728.4
Transaction Value per Share 47.3 47.3 47.3 47.3
Common Stock KT 11,530.1 11,530.1 11,530.1 11,530.1
Stock Portion of acquisition 100% 50% 40% 20%
Shares Issued for KT Corp 7,073.7 3,536.8 2,829.5 1,414.7
Total Shares Post Transaction 56,237.1 52,700.2 51,992.9 50,578.1
Pro-Forma Net Income 7,685.4 7,685.4 7,685.4 7,685.4
EPS Post acquisition 0.137 0.146 0.148 0.152
Accretion/Dilution (0.005) 0.004 0.006 0.010
15. Asia-Pacific telecommunication services market value
2011-2016
South Korea has one of the
world‟s most active
telecommunications and IT
markets backed by strong
support from the government.
As well as the commitment of
the government, the sector is
boosted by an innovative
private sector and a
technologically savvy
population. Spending on ICT
and high-technology equipment
helped lead a transformation of
the economy. The government
aims to transform the country
into a knowledge-based
information society in a „smart-
age‟.
South Korea accounts for 5.1%
of the Asia Pacific
telecommunications market
value
16. M&A Competition Team Members
Geri (Rigers) Cupi, President at Bath University Management Society
rc456@bath.ac.uk
Geri is a 2nd year Undergraduate at University of Bath studying Business Administration
expected to graduate in 2015. Currently, Geri is having a 6 month placement as Northern
Europe Sales Operations Admin at Vodafone Global Enterprise HQ. In the past, Geri
worked as Credit Risk Analyst Intern at National Commerce Bank (BKT) in Albania. Geri
has been involved in leading different student societies (CEO of Young Enterprise in
St. Clares, Oxford, President of Management Society, Committee member of Bath
Entrepreneurs Society).
Mattia Zarulli, Mergers and Acquisitions Associate
mattiazarulli@gmail.com
Mattia has worked for the past 5 years in New York as an Associate at Clairfield
International; a top-ranked M&A investment bank boutique specialized in mid-market,
cross-border transactions. During his tenure at Clairfield, Mattia has worked with large
multinationals as well as small/medium enterprises on transactions across a variety of
industries. Mattia is currently enrolled in the MBA programme at the University of
Cambridge – Judge Business School.
Tarah Bouaricha, 4th year in Financial Engineering
b.tarah@gmail.com
Tarah is studying Financial Engineering in 4th year at ECE Paris. She spent one semester
at Concordia University to study Computer Science. Tarah carried out two internships at
Societe Generale and discovered the bank management. She's looking for an off cycle
internship in investment banking.
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17. References
• Vodafone Group Public Limited Company website – www.vodafone.com
• Vodafone group fact sheet - www.vodafone.com/content/dam/vodafone/investors/factsheet/group_factsheet.pdf
• Vodafone group releases -
www.vodafone.com/content/index/media/group_press_releases/2012/prelim_31march2012.html
• KT Corp website - www.kt.com/eng/
• Marketile – www.marketline.com
• Marketline Industry Profile Telecommunication Services in Asia-Pacific
• Capital IQ
• http://www.thisismoney.co.uk/money/investing/article-2097825/Credit-Suisse-stock-market-returns-1900-The-24-
year-spell-UK-shares-failed.html
• www.budde.com.au/Research/South-Korea-Key-Statistics-Infrastructure-Regulatory-Overview-and-Forecasts.html
• www.rcrwireless.com/blog/20120105/industry/report-global-telecom-industry-revenue-to-grow-at-5-3-annually/
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