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Background and rationale for the Offer |
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Since December 2000, the Vodafone Group has acquired a 45% shareholding in JAPAN TELECOM and has substantially increased its shareholding in the J-Phone Group, reflecting the strategic importance of the Japanese market to the Vodafone Group. As a result of its increased influence, the Vodafone Group has been able to make a more substantive contribution to the successful development of the J-Phone Group. The Vodafone Group actively promoted the pending merger of the J-Phone Group companies, approved by shareholders on 10 September 2001, which will create a unified national wireless operator.
The Offer represents a major step in streamlining the ownership and management structure of JAPAN TELECOM and the J-Phone Group (together, the "JAPAN TELECOM Group") and is expected to lead to further improvements in both JAPAN TELECOM's and the J-Phone Group's operating performance. The Offer conforms to the Vodafone Group's stated strategy of increasing its holdings geographically where it has existing shareholdings and not financing such acquisitions by the issue of shares.
The Vodafone Group is further strengthening its position in Japan in order to:
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increase its participation in the high growth Japanese wireless market which has an attractive three national operator structure, low levels of penetration and high levels of average revenue per user ("ARPU") compared to Western Europe and demonstrable early take-up of wireless data services. |
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obtain greater exposure to the development of 3G and wireless data services in Japan through sharing of content and application skills, enhanced data marketing expertise and partnerships with manufacturers and application developers. |
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contribute to and benefit from improvements in the operational performance of the J-Phone Group through the provision of global products and services, supply chain and procurement improvements, improved customer care and best practice transfer. |
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The Vodafone Group expects that completion of the Offer will accelerate its and the JAPAN TELECOM Group's ability to capture these benefits and increase the extent to which the Vodafone Group shares in them because it is expected to:
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further strengthen the Vodafone Group's position in the Japanese market |
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deliver control over the JAPAN TELECOM Group on a friendly basis |
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integrate the JAPAN TELECOM Group more closely with the Vodafone Group |
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add 10.5 million controlled mobile customers to the Vodafone Group's controlled mobile customer base of 73.5 million, as of 30 June 2001 |
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provide the opportunity to apply the Vodafone Group's management skills to improving the operations of JAPAN TELECOM's fixed line business, which continues to operate in a challenging market environment |
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allow consolidation of the JAPAN TELECOM Group's financial results. |
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As a result, the Vodafone Group is targeting to reach increased EBITDA margins at the J-Phone Group of 30% by the end of calendar year 2005.
In addition to margin improvements from better management of the existing business, the Vodafone Group also believes that there are significant benefits which can be harnessed by more closely integrating the J-Phone Group into its global footprint. The Vodafone Group expects that additional value will be created from providing the J-Phone Group with access to the Vodafone Group's supply chain management expertise, including global procurement pools for infrastructure, IT and handsets, as well as from the transfer of best practice for customer relationship management, marketing, distribution and products and services.
The acquisition of 21.7% of JAPAN TELECOM, assuming that the Vodafone Group maintains JAPAN TELECOM's existing capital structure, is expected to be marginally dilutive to Vodafone's pre-goodwill amortisation and exceptionals earnings per share in financial year 2003 and broadly neutral in financial year 2004.
Vodafone and VIHBV were advised by UBS Warburg, Japan Telecom was advised by Mizuho Securities Co., Ltd. and JR East was advised by Nomura Corporate Advisors Co., Ltd. |
