New Financial Worlds ConferenceM&A Competition Finals.Vodafone’s potential acquisition of KT CorpDecember 15, 2012•   Tara...
Vodafone Overview | Vodafone is one of the world‟s leading providersof mobile telecommunication services              Comp...
Vodafone Key Financials | Vodafone‟s financials show over £8 bn. incash and a Debt/EBITDA ratio of 2.6x                  I...
KT Corp. Overview | KT Corp is the leading telecommunication, dataprovider and broadband internet access provider in Korea...
KT Corp – Key Financials | KT Corp‟s financials show goodprofitability                Income Statement                    ...
Acquisition Rationale | The acquisition of KT will allow Vodafone to    expand in Asia and act as an entrance in a technol...
Discounted Cash Flows Analysis | The analysis results in an                                                               ...
Trading Comparables Analysis | KT Corp.‟s peer group trades                                                               ...
Transaction Comparables Analysis | The EV/EBITDA multiple 3  for Asia-Pacific telecommunication companies is, on average, ...
Summary of Findings | Plotting together the three methodologies                                                      4reve...
Appendices:M&A CompetitionVodafone’s potential acquisition of KT Corp                                              11
KT Corp. Projected Income Statement                                           2011A       2012P       2013P       2014P   ...
KT Corp. Project Balance Sheet                        December 31st                2011A     2012P     2013P     2014P    ...
Accretion/Dilution AnalysisVodafone Share Price                 1.6Vodafone Shares Out             49,163.4Vodafone Net In...
Asia-Pacific telecommunication services market value2011-2016South Korea has one of theworld‟s most activetelecommunicatio...
M&A Competition Team Members          Geri (Rigers) Cupi, President at Bath University Management Society          rc456@b...
References• Vodafone Group Public Limited Company website – www.vodafone.com• Vodafone group fact sheet - www.vodafone.com...
Vodafone’s potential acquisition of KT Corp by Geri Cupi Mattia Zarulli Tarah Bouaricha at New Financial Worlds Conference...
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Vodafone’s potential acquisition of KT Corp by Geri Cupi Mattia Zarulli Tarah Bouaricha at New Financial Worlds Conference - M&A Competition Finals

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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.

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Vodafone’s potential acquisition of KT Corp by Geri Cupi Mattia Zarulli Tarah Bouaricha at New Financial Worlds Conference - M&A Competition Finals

  1. 1. New Financial Worlds ConferenceM&A Competition Finals.Vodafone’s potential acquisition of KT CorpDecember 15, 2012• Tarah Bouaricha• Geri Cupi• Mattia Zarulli
  2. 2. Vodafone Overview | Vodafone is one of the world‟s leading providersof 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. 3. Vodafone Key Financials | Vodafone‟s financials show over £8 bn. incash 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. 4. KT Corp. Overview | KT Corp is the leading telecommunication, dataprovider 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. 5. KT Corp – Key Financials | KT Corp‟s financials show goodprofitability 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. 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. 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 ValueDecember 31st 0 1 2 3 4 5 WACCRevenues 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 0.2Depn & 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) 243.7NOPAT 654.5 728.4 778.7 817.6 858.5 901.4 910.4 Share Price 22.0 Market Cap 5,354.1Depn & Amortization 1,708.8 1,901.9 2,033.1 2,134.8 2,241.5 2,353.6 2,377.1 Net Debt 5,372Change 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 504.3 512.9 555.7 583.5 612.7 661.5WACC 4.5%Discount factor 0.96 0.92 0.88 0.84 0.80 0.80PV 482.5 469.4 486.6 488.8 491.1Terminal Value 18,769.3PV 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. 8. Trading Comparables Analysis | KT Corp.‟s peer group trades 2 at 2.0x revenues and 5.5x EBITDA MCap and EV Valuation MultiplesTrading Comparables Market Enterprise Country Currency(in millions, except where noted) Cap Value EV/Revenues EV/EBITDA P/ELG Uplus Corp. (KOSE:A032640) Korea GBP 1,852.9 4,365.0 0.7x 5.2x NMOnse 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 14.0xTelekomunikasi Indonesia Tbk (JKSE:TLKM)PT Indosat Tbk (JKSE:ISAT) Indonesia GBP 2,238.1 3,483.4 2.5x 5.5x 24.6xSK Broadband Co., Ltd. (KOSE:A033630) Korea GBP 773.3 1,487.1 1.1x 4.8x NMTelstra Corporation Limited (ASX:TLS) USA GBP 34,533.3 42,494.3 2.6x 6.7x 15.5xVerizon Communications Inc. (NYSE:VZ) USA GBP 79,223.1 139,623.9 2.0x 7.0x 41.4xVimpelCom Ltd. (NYSE:VIP) USA GBP 11,091.3 26,719.5 1.9x 4.5x 18.6xVodafone 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. 9. Transaction Comparables Analysis | The EV/EBITDA multiple 3 for Asia-Pacific telecommunication companies is, on average, 5.7x Valuation Multiples Target % EnterpriseDate Buyer Target Country acquired Value Curr. Sales EBITDA EBITOct2012 SOFTBANK CORP. eAccess Ltd. Japan 100.0% 346,566.4 JPY 203,862.6 1.7x 45,600.8 7.6x 21,004.0 16.5xOct2012 Vodafone New TelstraClear New Zealand 100.0% 657.5 NZD 657.5 1.0x 149.4 4.4x 17.8 36.9x Zealand Ltd. LimitedOct2009 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 CorporationNov2011 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 DistanceJun2009 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 18.9xSep2010 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. 10. Summary of Findings | Plotting together the three methodologies 4reveals 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 7.6xTransaction Comps 1 2 3 4 5 6 7An accretion/dilution analysis (see Appendix) reveals that an all equity acquisition would be slightly dilutive forVodafone. We would therefore recommend financing the acquisition of KT Corp through a combination of cash onthe balance sheet, additional debt and new equity. 10
  11. 11. Appendices:M&A CompetitionVodafone’s potential acquisition of KT Corp 11
  12. 12. KT Corp. Projected Income Statement 2011A 2012P 2013P 2014P 2015P 2016P Terminal Value December 31st 0 1 2 3 4 5Revenues 12,697.1 14,131.9 15,107.0 15,862.3 16,655.4 17,488.2 17,663.1Average 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 6,786.4Gross 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 6,914.4EBITDA 2,848.3 3,170.2 3,388.9 3,558.3 3,736.3 3,923.1 3,962.3EBITDA 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. 13. KT Corp. Project Balance Sheet December 31st 2011A 2012P 2013P 2014P 2015P 2016P Terminal ValueCash & Equivalents 738.5 978.5A/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 118.0 118.0 118.0 118.0 118.0 118.0 118.0Inventory 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 26.2Other 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 5,653.2PP&E, Net 7,736.2 8,096.7Other L-T Assets 3,478.3 4,776.3Total Assets 15,556.2 18,526.2A/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 70.7S-T Debt 1,572.6 1,219.8S-T Capital Leases 19.1 26.7Other 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 5,049.5L-T Debt 3,845.5 5,130.9Capital Leases 35.1 52.0Other L-T Liabilities 567.1 1,054.4Total Liabilities 9,000.3 11,286.8Total Equity 6,555.8 7,239.3Total Libailities & Equity 15,556.1 18,526.1Working Capital 642.3 871.7 905.6 968.1 1,016.5 1,067.4 1,120.7 1,131.9Changes in Working Capital 229.4 33.9 62.5 48.4 50.8 53.4 11.2
  14. 14. Accretion/Dilution AnalysisVodafone Share Price 1.6Vodafone Shares Out 49,163.4Vodafone Net Income 6,957.0Vodafone EPS 0.142KT Corp NOPAT (no synergies) 728.4Transaction Value per Share 47.3 47.3 47.3 47.3Common Stock KT 11,530.1 11,530.1 11,530.1 11,530.1Stock Portion of acquisition 100% 50% 40% 20%Shares Issued for KT Corp 7,073.7 3,536.8 2,829.5 1,414.7Total Shares Post Transaction 56,237.1 52,700.2 51,992.9 50,578.1Pro-Forma Net Income 7,685.4 7,685.4 7,685.4 7,685.4EPS Post acquisition 0.137 0.146 0.148 0.152Accretion/Dilution (0.005) 0.004 0.006 0.010
  15. 15. Asia-Pacific telecommunication services market value2011-2016South Korea has one of theworld‟s most activetelecommunications and ITmarkets backed by strongsupport from the government.As well as the commitment ofthe government, the sector isboosted by an innovativeprivate sector and atechnologically savvypopulation. Spending on ICTand high-technology equipmenthelped lead a transformation ofthe economy. The governmentaims to transform the countryinto a knowledge-basedinformation society in a „smart-age‟.South Korea accounts for 5.1%of the Asia Pacifictelecommunications marketvalue
  16. 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. Shes looking for an off cycle internship in investment banking. 16
  17. 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/ 17

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