Vodafone/Hungary: victor Orbán builds nationalist champ at a cost


Right now, Nick Read must be humming the Hungarian national anthem, which extols the land of the Danube and Tisza. His statement on the sale of Vodafone’s Hungarian business will please local patriots and international investors. Hungary’s mission to digitalise is praised alongside the healthy sale multiple.

Rarely can pressure for disinvestment from a populist government have met such a welcoming response. Growth has stalled at the UK-listed telecoms group. Activist Cevian is applying pressure for chief executive Read to shrink European operations.

Other foreign operators — notably Deutsche Telekom — should be rattled by the Ft715bn (€1.8bn) disposal. They will note that a Hungarian state holding company is buying in partnership with local group 4iG.

Viktor Orbán, strongman leader since 2010, does not fear controversy. His policies are rightwing, nationalist and occasionally racist. EU leaders complain that he channels subsidies and contracts to corporate allies to cement their support. The EU has accordingly withheld €7.2bn of financing.

Orbán’s government decreed surtaxes on telecoms and some other industries in early June. That would have hurt Vodafone Hungary. The nation’s leading operator Magyar Telekom blamed the tax for missing its profit target in the second quarter. Deutsche Telekom is majority owner of that Budapest-listed business.

The acquirers of unlisted Vodafone Hungary are paying a decent price of 9.1 times trailing ebitda. European telecoms trade on an average at just over 6 times adjusted ebitda, say New Street analysts.

This deal looks timely and well priced, though small at 1.5 per cent of group ebitda. Vodafone will retain a call centre in Hungary. Its Vantage Towers offshoot will continue to operate mobile masts there.

One wonders how long it will be before Deutsche Telekom receives an offer for its stake in Magyar Telekom that it cannot refuse. The shares have slumped by a quarter since Russia invaded Ukraine. The business is valued at less than half Vodafone Hungary. Part acquirer 4iG will become a strong number two to Magyar Telekom in the country, according to Bernstein.

Vodafone is clever or lucky to get a good price for its Hungarian unit. Other multinationals may need to extricate themselves from Orbán’s orbit at greater cost.

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