Things did not go well. The psychological shares have recently slipped below the 100 penny level. It beat Vodafone’s competition in Germany, its main market. The management is trying to convince the developer that the debt will come under control by dealmaking. Activist Cevian Capital AB returned the stake earlier this year, but telecoms billionaire Xavier Niel has maintained his position as a potential driver.
Rewind to 2013 and it’s hard to believe that Vodafone could have gotten into such a mess. Then Chief Executive Officer Vittorio Colao exited the joint venture with Verizon Communications Inc. They agreed for $130 billion. Most of the money received — mostly a mix of money and Verizon shares — went to shareholders in the fund. That was the most important thing, making a gap in the years of government building. Sadly, the sequels in this M&A saga were a letdown.
Vodafone has added cable infrastructure to its portfolio to pursue a so-called convergence strategy to sell telephone, internet and television packages. After offering $11 billion to Germany’s Kabel Deutschland AG, it then outbid Spain’s Grupo Corporativo ONO SA for $10 billion. Later, the Spanish market became viciously competitive.
In 2018 comes a $22 billion acquisition of assets by rival Liberty Global Pie. This filled the gaps in Vodafone’s German coverage. Less than a week after the announcement, Nick Read, then chief financial officer, was announced as Colao’s successor and the mammoth integration job. True, Colao had been the boss for almost 10 years, but the succession was hardly ideal. Vodafone’s share of Europe’s peers is always at the bottom.
To be fair, the idea of becoming a telecom bundle provider made sense, and it had taken years to build this from a complete acquisition point of view. The problem is that Vodafone is not running well. At the beginning, synergies failed, poor customer service saw it lose German market share. If you do an expensive M&A, you will have a flawless agent that you bought.
Vodafone also took on a lot of debt. It’s an excellent decision, but it would have been wiser to keep more of the hard $80 billion to the shareholders behind the Verizon deal and more of the precept.
For then, Vodafone did not act, or it took a long time. Its assets are Europe and emerging markets. However, what matters most in telecoms is the scale within the borders is not crossed, while the multinational footprint adds complexity for the investment. Vodafone could do more to look at select markets in Europe while finding better owners for everything. That accelerated the debt and made the company a more manageable beast.
Earlier this year, Vodafone struck a deal with Masmovil Ibercom SA, sending Aureum SA on its way to Spanish consolidation. And while this month’s deal on part of the sale of its mobile towers will fall under pressure, the government has partnered with a consortium of private equity and Saudi Arabian funds. It was better to make the right arrangement years ago.
There is no rabbit that CEO Read can pull from a hat now. Regulators are likely to be more cautious as they target consolidation within Vodafone’s markets with consumers. A proposed merger with three UK-based owners, CK Hutchison Holdings Ltd., may yet materialize.
Reading is your best bet to run better operations, cut costs and seize whatever opportunities M&A fortune presents to you. It could be even more clearly a benefit to the shareholders than to lower the debt. Analysts at New Street Research see the potential for 4.9 billion euros ($5.1 billion) in cash returns if things go well.
A smaller company with this bill would be the very target of the takeover. Vodafone’s enterprise value, exceeding $90 billion, provides protection from that threat. A business fantasy would be a well-organized group of buyers looking to carve out a firm among themselves. if it stood, the status quo would have to be defended, a huge challenge.
It is up to Chairman Jean-François van Boxmeer to decide whether Legere successfully leads Vodafone out of the abyss. But any CEO here would have the same limited options to turn this monster around.
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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Chris Hughes is a Bloomberg Opinion columnist. He previously worked for Reuters Breakingviews, the Financial Times and an independent newspaper.
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