A surprise investment of USD4.4 billion in Vodafone by UAE-based telecom company E& caused the shares of the British company to inch higher, in what is seen as a possibly short-term, but much needed boost to the British company’s CEO Nick Read.
On Saturday, the company previously known as Etisalat, stated that it had become the largest shareholder in Vodafone with a 9.8 percent stake in the company. It further said that it was attracted to it’s management, efforts to unlock value, and a diversified currency base.
The company ruled out exerting control or launching a full takeover of Vodafone.
Activist investor Cevian and other large shareholders had previously called on the firm to simplify its portfolio, boost returns and consolidate markets, which caused analysts to be divided on the group’s long-term plan.
Credit Suisse and Jefferies said that the investment could give Read more space to invest in assets and hold-off pressure to sell operations immediately, while analysts at JP Morgan stated that E& could become more activist over time, possibly in conjunction with Cevian.
In a statement, Credit Suisse said that the investment could allow the company to make investment decisions at the expense of short term free cash flow, since it had an industrial backer with a long-range plan.
Meanwhile, Jefferies stated that the presence of E& on the shareholder register of Vodafone could counteract the activist demands, and enable the company to reset consensus demands, knowing that E& could increase its holding and support the shares.
Vodafone shares up
In morning trading on Monday, shares of Vodafone were up by around 3 percent, however, remaining approximately 25 percent below the level when Read took over the top job as CEO in 2018. Shares in E& were up 6.3% in the same session.
With operations across Europe and Africa, Vodafone said that it looked forward to building a long-term relationship with E&, while noting that it had made substantial progress with it’s long-term strategic plans.
E&, previously known as Etisalat, started in the UAE and has since expanded into 15 different markets across Asia, Africa and the Middle East. Despite lower revenues than Vodafone, the company has higher margins and double the market capitalization of the British company. E& has a market cap of USD74.5 billion, and enough bandwidth for more deals in future.
Earlier this year, Vodafone had said that it would pursue mergers in multiple European markets, in the belief that regulators would realize the value of network investment.
The company has 66.3 million mobile contract customers in Europe and 188 million in Africa.