- US telco makes £1.2 billion bet on mobile network
- ‘Cowboy of cable’ John Malone has been an active industry dealmaker
- Repairing years of dismal returns unlikely to happen quickly
Loosening UK regulations in the telecoms industry were always designed to allow more industry consolidation, and Vodafone (VOD) sees itself as a major mover and shaker. Not so much as a target itself.
Yet Denver-based Liberty Global (LBTYA:NASDAQ) has taken a 5% stake in the UK mobile network which means that the ‘Cowboy of cable’ John Malone, Liberty’s chairman, has taken a £1.2 billion bet that Vodafone is going to be an important cog in the manoeuvres.
WHO’S LOOKING AT VODAFONE
He is not the first industry player to take an option on what Vodafone does next but it feels like Malone sees owning a piece of Vodafone is key to influencing decisions. ‘Middle Eastern group e& already has a 13% stake in Vodafone and French investor Xavier Niel owns 2.5% of the business, so Liberty Global must join the queue of people eager to have a chat about where Vodafone goes next,’ said AJ Bell investment director Russ Mould.
Liberty Global has been one of the most active dealmakers in European telecoms over the past five years, having sold, bought and merged various operators. In 2021 it closed a £31 billion agreement to merge its Virgin Media business with Telefónica’s O2, and also sold its German and some eastern European assets for €18.5 billion in 2018.
As a standalone business, Vodafone has struggled to generate any notable sales and earnings growth in recent years, and its share price performance has been truly miserable. ‘Slowly, other players are planting their flags by investing in Vodafone with the market expectation that they will try and extract some value from the business,’ said Mould.
No wonder Vodafone shares popped, rallying around 4% on St Valentine’s Day (14 Feb) to 97.5p. That’s still a third of the price a decade ago. Thank heaven for dividends, shareholders must be thinking, which have helped cap the dismal performance to around a 2% average total return over those 10 years.
VODAFONE LOOKS FRAIL
Vodafone has seldom looked more fragile, with previous chief executive Nick Read, under whose tenure Vodafone lost more than 40% of its value, stepping down at the end of last year. He has been replaced on an interim basis by Margherita Della Valle, Vodafone’s chief financial officer.
Vodafone had some interesting catalysts going forward, not least the proposed merger with CK Hutchison’s UK business Three UK, for which talks are continuing, but investors shouldn’t expect much to happen quickly. Even that deal will leave Vodafone sort on a TV offer, hence long-run speculation over move for TalkTalk.
Cevian Capital, one of Europe’s biggest activist investors, previously bought a stake of undisclosed sized and sought a shake-up but sold out entirely after deciding any change roadmap was likely to come at tortoise rather than hare’s pace.
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Steven Frazer) and the editor (James Crux) own shares in AJ Bell.
