Vodafone in £700m German deal

MOBILES operator Vodafone is set to seal the first step on restructuring its German fixed-line unit Arcor in a bid to realise cash to finance its wireless operations.

Vodafone inherited a 73.6% stake in the German business through its e180bn (£110bn) acquisition of Mannesmann.

It is in talks with the minority shareholders, German rail operator Deutsche Bahn and Deutsche Bank, to try to realise value from the unit. Company sources said today major points had been agreed but the deal was awaiting final signatures. An official announcement is likely early next week.

A decline in Arcor's value was one of the main factors behind Vodafone's £4.5bn asset writedown in its results announced last month. As an initial step to Vodafone's exit, a formal agreement between it and Deutsche Bahn is imminent. Vodafone will receive about £700m for Arcor's line infrastructure, which runs alongside most of Germany's railways, and those assets will be shifted into a separate company.

The deal would placate Deutsche Bahn, which owns 18% of Arcor and is one of its major corporate clients. It has opposed a flotation or sale of Arcor under its current-structure. Arcor has 2.4m customers, making it the second largest fixed-line operator in Europe's biggest economy.

Vodafone wants to concentrate on developing its D2 mobiles business in Germany, and will use cash to reduce its £17bn in debt.

British Telecom, which has been linked with a possible alternative acquisition of Arcor assets, said today that its interest in such a deal had passed.