One of Vodafone’s biggest shareholders has hailed an activist campaign aimed at improving the company’s telecoms performance as “very sensitive”, as another investor said the move was “long overdue”.
The comments give support to Cevian Capital, Europe’s largest activist investor with roughly $ 15bn in assets under management, which has built an undisclosed stake in Vodafone and has been engaging with its board and management for months. Cevian wants Vodafone to restructure its portfolio, reduce assets in underperforming markets and refresh its board to improve lack of performance.
Andrew Millington, head of UK equities at Abrdn, a top 10 shareholder in Vodafone, said Cevian’s push for the company to restructure its portfolio and drive consolidation was “very sensitive”.
“We would like to see management execute on what it has said it’s going to do around the portfolio, such as in-market consolidation and potential strategic opportunities for its business towers.”
Vodafone’s chief executive Nick Read led an IPO of Vodafone’s towers business last year and is looking to pursue either bolt-on acquisitions or industrial mergers with companies such as France’s Orange or Germany’s Deutsche Telekom.
Peter Schoenfeld, founder of New York-based hedge fund PSAM, which has a $ 120m position in Vodafone, said: “It’s a long overdue that a shareholder holds the board accountable for its past actions and inaction, and we think a great deal of value remains to be unlocked. We welcome Cevian. ”
There has been concern among Vodafone stakeholders for some time that the company lacks agility, and is weighed down by the complexity of dozens of disparate but tightly interwoven businesses.
Telecoms companies have been performing poorly for the past few years. Vodafone has had a bad run, with shareholders losing 9.4 per cent over the past five years including dividend payment, and has suffered from a heavy build up of debt after acquiring Liberty Global in 2019. The company is trading at 10.3-times 2023 full- year earnings, compared with 13.5-times in the wider sector, according to Numis.
Read has been examining opportunities for consolidation in some of the more challenging and saturated telco markets, including Spain, Italy and the UK.
Cevian has not disclosed when it bought a position in the company. Millington said: “We’ve noticed a change by Vodafone management over the past six to nine months, talking about being more proactive in taking portfolio action to create value.”
Karen Egan, a senior telecoms analyst at Enders Analysis, said Vodafone’s high debt levels had been a “huge distraction” and that the Liberty Global acquisition has “in no way, shape or form lived up to its promise.”
Schoenfeld, who in the past wagered a campaign at France’s Vivendi, echoed calls for Vodafone to try to monetise its towers business, Vantage Towers. “Vodafone should pursue strategic opportunities to try to monetise its towers business quickly, and tax efficiently, either before or after a strategic combination.”
He pointed to transactions with publicly traded towers entities, private equity and infrastructure buyers “at very attractive multiples.”
Notably last week Brookfield and Swedish asset manager Alecta bought 49 per cent of Telia Company’s tower business in Sweden in a deal that valued the business at 28.2 times earnings before interest, taxes, depreciation and amortization.
Cevian also wants Vodafone to refresh its board, which it has criticized for its absence of telecoms experience. Schoenfeld said he supported this.
“The board really doesn’t have an experienced strategy-oriented member that understands the capital reallocation that needs to take place,” he said. “Management lost credibility when they cut the dividend in 2019 after saying that this would not be necessary. This has hurt the stock and to date they failed to restore confidence in their leadership. ”
But Egan said “it’s not at all obvious to me that Vodafone is doing the wrong things” and noted that it has faced regulatory obstacles to consolidation.