On Breakingviews: Vodafone’s activist investor is relying on an unconventional ‘fingers-crossed’ approach to boosting the UK telecoms operator’s value, writes edwardcropley
, which has acquired an undisclosed stake in the 36-billion-pound company, wants Chief Executive Nick Read to push harder for consolidation in crowded markets. The strategy is worryingly reliant on the acquiescence of competition watchdogs.
It’s no surprise Vodafone has ended up on activists’ radars. Over the last five years, the company has delivered a total return including dividends of minus-4.7%, against a 28% for the benchmark FTSE 100 Index. Over the same period, Vodafone’s Johannesburg-listed African subsidiary, VodacomYet activists appear short of clear quick fixes. Fully spinning off Vodafone’s African and newly listed mobile towers unit would not obviously unlock much value.
The focus is therefore on consolidation in Vodafone’s main European markets. Hooking up with another operator in Italy, Spain or the United Kingdom would reduce the number of competitors in those countries from four to three, cutting costs and improving pricing power. The United States has just three competing operators while Vodacom earns a 40% EBITDA margin from its less-crowded African patches, against 34% for Vodafone as a whole.
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