This morning Vodafone (LSE: VOD) (NASDAQ: VOD.US) announced its intention to buy Cobra Automotive Technologies, an Italian-based provider of security and telematics solutions to the automotive and insurance industries. Vodafone will pay €1.49 per share in cash, which places a value on Cobra of €145m (£115m). As of 31 March 2014, Cobra had net debt of €48m (£38m).
Cobra’s global presence includes operations throughout Europe, and also in Brazil, China and Japan. The company has two main business units. One is ‘telematics’ — services that enable its clients to offer assistance in the case of accident and vehicle theft, to manage their fleet vehicle operations costs, and to collect data about “driving behaviour indicators” as part of usage-based insurance. The other is’ electronic systems’, which focuses on the design, development, manufacturing and distribution of electronic systems and components.
Vodafone says that its intended acquisition of Cobra is in line with its strategy of expanding its machine-to-machine (“M2M”) capabilities. Vodafone says that Cobra’s telematics products and expertise will enable it to provide a more comprehensive range of end-to-end services to automotive customers.
At this stage, Vodafone’s intention to buy Cobra is still conditional on to anti-trust approval, but does have the agreement of a majority of the shareholders. Subject to all going well, the deal is expected to complete in Q3 2014.
Commenting on the announcement, Vodafone’s director of M2M, Erik Brennels, said
“The combination of Vodafone and Cobra will create a new global provider of connected car services. We plan to invest in the business to offer our automotive and insurance customers a full range of telematics services.“
At its current share price of 195p, Vodafone stands on a forward price-to-earnings ratio of almost 30 — more than twice the FTSE 100 average of around 14. So, despite a what currently seems a very generous forward yield of close to 6%, Vodafone’s current valuation might seem rather too rich for many people — not least because the dividend may well be under threat from a 60% fall in earnings forecast for 2015.
