Vodafone is 30 years old but the high point for its shareholders, remarkably, came 20 years ago – in the days when mobile phones were new and exciting. The group had just completed its daring and record-breaking acquisition of German group Mannesmann. Its share price hit 400p and the UK seemed to have a global success on its hands.
Since then, Vodafone’s tale has been one of many more rounds of deal-making, but mostly to try to keep up with a telecoms industry where investment demands only seem to get bigger, especially when fast-fibre comes along to complicate the fixed line-versus-mobile balance.
There was a false dawn in 2013 when Vodafone sold its US assets to Verizon at the splendid price of £100bn. However, a few of the resulting purchases in Spain and Germany (again) now look to have been done at prices that were too rich. The group’s returns have been below its cost of capital for more than a decade, calculate Credit Suisse’s analysts.
The share price lost touch with 200p around 2018, just before a hefty dividend cut. The price is now 130p. So, yes, this is fertile territory for an activist investor. Swedish-based group Cevian Capital hasn’t yet declared its stake or its ambitions, but its arrival will be welcomed by other shareholders.
The popular diagnosis is that Vodafone is too damn complicated. At BT, shareholders (finally) know what they’re getting: a bet on UK fibre rollout and 5G. Vodafone’s pan-European business, by contrast, is a mish-mash of wholly owned operations, majority owned businesses and 50-50 joint ventures. Add the African Vodacom operation plus Turkey and the setup still looks like a sprawling empire. It wouldn’t matter if overall revenues were flying, but they’re not.
To be fair to chief executive Nick Read, he has done 17 deals in three-and-a-bit years at the helm, with the aim of simplifying. Peripheral assets in New Zealand, Malta and elsewhere have been sold. He has separated a German-based masts and towers business and given it a listing in Frankfurt (Vodafone retains 82%) to pave the way for future combinations. He has also stopped the financial pain in India.
None of it, though, has reawakened the share price. Redburn’s telecoms analysts offered 10 ideas for transformation, most of which can be filed under backing your best markets. “Imagine selling towers, Netherlands and Spain and using that money to gain more scale in Italy and the UK and to turbocharge Germany,” it says. Yes, that would be a cleaner pitch.
Easier said than done, though. The problem with fantasy mergers and acquisition ideas is that regulators often view life differently. Four mobile networks have traditionally been seen as the minimum within a European country to guarantee consumer-friendly competition. Has a pandemic that highlighted the critical role of telecoms infrastructure made regulators more inclined to smile upon consolidation? Hard to know, but this is the moment to test the thesis. A combination of Vodafone and Three in the UK, for example, looks obvious.
But there are also factors within Vodafone’s control. As ever when an activist arrives, the makeup of a company’s board is pushed into the spotlight. The long-serving UK non-executives at Vodafone are Sir Crispin Davis (ex-Reed Elsevier), Dame Clara Furse (ex-London Stock Exchange) and David Nish (ex-Standard Life). That collection scores well on the knighthood and damehood count, but it’s hard to spot the telecoms expert. Newish chairman Jean-François van Boxmeer would be well-advised to add some clout.
In terms of general strategic direction, it may turn out that Cevian and Vodafone’s management aren’t a million miles apart. Read has been singing the simplification song more loudly recently, as well as appealing to regulators to ease up. Execution, though, remains the frustration. A kick, if that’s what Cevian is about to deliver, looks deserved.
A smart deterrent
We’re still waiting for the government’s big idea on how to alleviate customers’ energy bills when the price cap is hiked, but they’re clearly waking up at the Treasury.
A measure quietly introduced last week is aimed at any energy supplier thinking of playing fast and loose by selling its valuable hedges on gas-purchase contracts for a tidy profit and then letting the company fail. If you do that, says the Treasury, you’ll be hit with a 75% levy on the profits under a new “public interest business protection tax”.
It’s a sensible deterrent. It is also yet another thing that neither the government, nor hapless regulator Ofgem, ever contemplated in happier days. The models weren’t designed for a gas price crisis, which is one reason why the energy supply industry is in such a mess.
