On 31st October in its Q3 2023 results Liberty Global announced the sale of a 16.67% stake in its UK MNO Virgin Media O2 (VMO2)'s tower joint venture Cornerstone Telecommunications Infrastructure Limited) to UK-based infrastructure fund GLIL Infrastructure, a partnership of British pension funds. The stake sale values Cornerstone at an EBITDAaL multiple of 18.7x and upon closing of the deal VMO2 will receive cash proceeds totalling £360mn (USD $435mn). VMO2 will retain a 33.33% stake in Cornerstone upon completion of the transaction.
“We are really pleased to welcome GLIL alongside Virgin Media O2 as an investor in Cornerstone, the largest mobile infrastructure company in the UK, as we grow our digital portfolio and deliver connectivity wherever it is needed”, Cornerstone CEO Pat Coxen said for TowerXchange.
Although the transaction involves a minority stake sale, the deal is important as Cornerstone is the UK’s largest mobile towers business, with a national footprint of 15,464 macro sites used by both Virgin Media O2 and Vodafone UK as anchor tenants.
What does the transaction mean for the UK market
“Cornerstone will remain a critical supplier to Virgin Media O2. This transaction will not impact the existing commercial network sharing agreement between Vodafone UK and Virgin Media O2, which sees the two companies share radio equipment across certain areas of the country”, Cornerstone commented for TowerXchange.
Following the merger of O2 and Virgin Media into one company in 2021, Telefónica and Liberty Global have been rumoured to have started a process to sell a stake in Cornerstone which had included options for both a part of VMO2’s 50% stake in the towerco or the whole of it.
Earlier in 2023, Telefonica and Liberty Global were said to be preparing to invite bidders for a 25% stake in Cornerstone as they sought to cash in on part of their investment, according to publications by Reuters. GLIL had emerged on top in an auction held earlier in the year for the stake sale in the UK towerco.
After a period of speculation, Liberty Global announced officially it’s exploring Cornerstone’s tower sale at its investors results presentation in July 2023 but no more details were shared at the time.
“Selling a minority stake in Cornerstone is a logical move for us. We are partially monetising our tower infrastructure, while retaining operational and strategic co-control in a key asset as we roll out 5G to more of the country and boost 4G connectivity”, Lutz Schüler, CEO of Virgin Media O2 said in the announcement published by Liberty Global confirming the deal.
VMO2 joins a growing number of mobile operators that are selling their tower assets to raise much-needed cash. Characterised by long-term contracts and operating in a mission-critical segment of a country's economy, tower portfolios are attractive to investors. Cornerstone’s assets offer scale. Compared to other markets such as the Nordics, growth expectations in the UK market are higher than for example the tower market in Sweden which is expected to grow at low single digit.
In the UK, a number of government initiatives support mobile network and telecom infrastructure expansion. One example is the Shared Rural Network initiative, developed by UK’s four MNOs and the government which will deliver 4G connectivity to 95% of the UK, expanding geographical coverage. Within its scope, existing networks will be upgraded, and infrastructure sharing and build of new sites will be incentivised as it aims to transform mobile coverage in rural areas across the country. MNOs will invest £532mn to eliminate the majority of “partial not-spots” meaning areas which receive coverage from at least one, but not all operators. The UK Government will provide a further £500m to build new towers to eliminate “total not-spots” which are hard to reach areas where there is currently no coverage at all. Additionally, Vodafone, Hutchison andVMO2 have signed an agreement to address partial not-spots, sharing the new build between them (with Cornerstone adding sites for Vodafone and VMO2.
Cornerstone was established in 2012 as a mobile network joint venture between Telefónica UK (now Virgin Media O2) and Vodafone UK. Since then, Vodafone transferred its 50% stake to its towerco Vantage Towers in 2021 (adding a further country to the towerco’s portfolio), with Virgin Media O2 retaining its 50% share prior to the partial stake sale to GLIL Infrastructure.
Since its set up, the towerco has densified its network, building greenfield sites and deploying small cells providing in-fill connectivity solutions for its stakeholders.
The UK market of over 40,000 macro towers has a unique structure with two joint venture towercos - Cornerstone (between Vodafone and O2 (Telefónica)) and MBNL (between EE (BT) and 3 (Hutchison). The two are responsible for over 70% of the country’s total stock of towers. Whilst Cornerstone has its own balance sheet, the towers managed by MBNL remain on the balance sheet of the parent MNOs.
Other towercos operating on the market are Britannia Towers, Cellnex, DigitalBridge’s Freshwave, Shared Access, Wireless Infrastructure Group and a few players with small tower portfolios such as Telecom Infrastructure Partners.
Nomura acted as an advisor to GLIL Infrastructure for the Cornerstone transaction. Earlier in 2023, the investment bank was involved in another transaction in Europe, acting as advisor to Stonepeak on their acquisition of a 49% stake in Cellnex’s business in the Nordics.
