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Bloomberg
A weak share price, a fragile dividend and a switch of chief executives: conditions at Vodafone Group Plc may be ripe for a shake-up by US activist investor Elliott Management Corp.
A report that Elliott has taken a stake in the world’s second-largest wireless carrier comes at a critical time for Vodafone, which is battling intense competition in Europe and trying to rescue its share price from an 8-year low.
Outgoing Chief Executive Officer Vittorio Colao spent the past decade shifting Vodafone from a predominantly mobile carrier with sprawling global investments to one which is more focussed on Europe and also offers bundled internet services. That has required investing in fiber networks and has put pressure on the company’s ability to return cash to shareholders.
Keeping those shareholders on side is a top priority for Nick Read, who succeeds Colao in October, and who is charged with seeing through a $22 billion takeover of Liberty Global Plc’s German and eastern European businesses. Representatives for Vodafone and Elliott declined to comment.
This would be the most compelling path for Elliott because it’s the simplest way to cover the dividend and pay down debt quickly at the same time, Berenberg analyst Usman Ghazi said in a note to clients.
This would address the disconnect between investors — who worry leverage will creep up as profits stagnate and expensive airwave auctions also sap cash — and management, who say debt will be paid off because earnings are set to grow.
Selling 50,000 of Vodafone’s roughly 110,000 phone towers and masts at levels similar to recent sales could net the company $14.7 billion, enough to pay down 40 percent of its almost 32 billion-euro debt pile, Ghazi wrote.
This could also save on maintenance and upgrade costs as the sector advances into faster wireless technology.
If Vodafone bought back its own depressed shares, it would also help pay for shareholder returns, creating more value for less risk than the megadeal announced in May to snap up Liberty Global’s units, Bank of America Corp. analyst David Wright said in a note to clients.
To pay for it, Vodafone would have to consider pulling out of the pact, which has a breakup fee of 250 million euros. Elliott previously pushed for buybacks in the case of Bezeq Israeli Telecommunication Corp.