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Investors in Vodafone are urging the FTSE 100 telecoms group to speed up long-awaited deal making to improve its stuttering performance.
Chief executive Nick Read has been under increased pressure since it emerged in January that Europe’s biggest activist investor, Cevian Capital, had taken a stake in the company and is angling for a major overhaul of the group, including shedding poor performing businesses, consolidating in key markets and beefing up telecoms expertise on the board.
The past decade has been tough for European telecoms, with fierce competition and tight regulation weighing on earnings. Although Vodafone’s share price has rallied since the start of the year, the company has shed more than a third of its value over the past five years.
For several months Vodafone has told investors that it would pursue deals with rival groups in markets where there is significant competition, such as Spain, Italy and the UK — but so far it has been unable to pull any of these off.
“Vodafone’s failure to do a deal has been a problem,” said Peter Schoenfeld, founder of New York-based hedge fund PSAM, one of the company’s shareholders. “It’s not like they’re not focused on the right areas and trying to pursue opportunities. It’s that they’re executing poorly.”
In February, Vodafone rejected an €11bn bid for its Italian business from French rival Iliad, owned by Xavier Niel, saying it was “not in the best interests of shareholders”. Then, after months of negotiations with Spain’s challenger telecoms group over a potential sale of its Spanish business, MasMovil turned its back on Vodafone in favour of a merger with Orange’s Spanish business.
Schoenfeld added that it was “particularly worrying that Vodafone senior management has made no public comments or engagement in recent weeks — not even a statement on a missed opportunity in Spain”.
One top 20 investor said: “We have serious doubts that the company can re-establish credibility with its legacy CEO and his strategy. There have been too many disappointments and missed opportunities.”
Another top 20 shareholder said that over the past nine months Read, a company veteran who became CEO in 2018, had “come quite a long way, matured and grown into the role,” but said that some shareholders were “unconvinced on whether he has the true leadership qualities to be the best chief executive for Vodafone”.
Another shareholder said that he was “disappointed” that Vodafone had “missed opportunities”. He urged the company to crack on with deals noting that in some markets, antitrust considerations mean that there are limited numbers of options. “If you reject an opportunity and someone else does it, you’re limiting your options and putting yourself into a corner,” he said.
Harry Richards and Adam Darling, managers of the Jupiter Corporate Bond Fund, which has a position in Vodafone’s debt, said “we appreciate management’s intentions to simplify and de-lever the business” and that they were broadly comfortable with the company’s strategy. But they added: “We would like to see some tangible progress through actual news of deals.”
Some investors are pushing for Vodafone to sell a stake in its infrastructure group Vantage Towers, which it spun out last year. Read has been clear that he is currently seeking a deal for the towers business, with a preference to pursue an industrial merger with Orange’s Totem business, or Deutsche Telekom.
Most investors argue that a towers deal will make a material difference to Vodafone’s performance, reducing debt while freeing up cash to invest. Other telecoms groups like Altice have spun off towers businesses at rich valuations.
PSAM’s Schoenfeld said that he wants the board to “direct management to emphasise a significant cash transaction for Vantage”. This would “transform Vodafone’s balance sheet, narrow the sum of the parts discount and facilitate the pursuit of new strategic options,” and potentially a capital return to shareholders, he added.
One shareholder said that while a change in chief executive might set Vodafone back again in terms of missed opportunities, “if Read doesn’t get something done soon with the towers . . . then his days are numbered”.
Vodafone said in a statement that it remains “open and pragmatic when considering in-market consolidation” and it is “exploring multiple opportunities across a number of markets”.
The statement added: “We will not execute fire sales and we’ll always be seeking value accretive transactions that clearly benefit our shareholders.” Vodafone said that it regularly updates shareholders on its strategy and will do so further at its full-year results next month.
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