Vodafone alone illustrates the difficulties of the telecom sector in Europe. In five years, the title of the British mobile giant has lost almost half of its stock market value. Like all the other major operators on the Old Continent, Vodafone is the subject of market revolt. Many take a dim view of its heavy investments in fiber, 4G and 5G, while its margins suffer from ultra-competition, maintained by Brussels to keep prices low with consumers, in its main markets. This is particularly true in the UK, Italy and Spain. Above all, the staff of Vodafone is criticized by some investors for having missed – or dismissed – certain consolidation opportunities in these key markets.
It is in this electrical context that the Emirati telecom giant e& announced last Friday that it had acquired no less than 9.8% of the British group for 4.4 billion dollars. The investment is significant: according to Bloomberg, e&, a group controlled by the wealthy oil state, thus becomes Vodafone’s largest shareholder, far ahead of BlackRock (which owns 3.5%), Vanguard (3%) and HSBC (1, 9%). E& ensures that this movement has only one ambition: to win “significant exposure to a global leader in connectivity and digital services”, without having the intention, for now at least, of launching a takeover bid. The Emirati group claims to support Vodafone’s business strategy, such as its board and management.
Towards a merger with Three in the United Kingdom?
The markets, they welcome the maneuver. On Monday, the title of Vodafone rose 2.80% on the London Stock Exchange. As if investors saw this arrival as a sign that things would soon, and profoundly, change… It must be said that Vodafone is now the subject of criticism and strong pressure in this direction. Cevian Capital, the largest activist fund in Europe, has been calling on management for months to simplify its activities, and to do everything to consolidate its positions in its main markets.
Last week the FinancialTimes revealed that Vodafone was in talks with rival Three UK, owned by Hong Kong’s CK Hutchinson, to merge their UK businesses. This marriage between the numbers three and four of mobile across the Channel would, in particular, significantly reduce competition, and possibly raise prices a little. But such an operation would require the approval of the competition authorities. Which is never simple: in 2016, the European Commission blocked a deal between O2 and Three, believing that their union would weigh down the competition, and would harm ultimately to consumers. According to the British economic daily, Vodafone hopes, this time, to win the timpani. How? By making the authorities aware of the colossal investments in the networks with which the sector is now confronted.
Towards consolidation in Spain
At the same time, Vodafone could benefit from a possible improvement in the Spanish market. In this country, where the price war has been raging for years, its rivals Orange and MasMovil are about to marry. Today in exclusive negotiations, the two operators hope to achieve their ends, and give birth to a new leader capable of playing elbows with the incumbent operator Telefonica. While Vodafone’s shareholders would no doubt have preferred Vodafone to be a player in consolidation, the group could, all the same, in the long term, benefit from softened competition.
Finally, in Italy, everything remains to be done. Here too, Vodafone’s results are suffering from strong competition. This has been particularly strong since the arrival of Iliad Italia, Xavier Niel’s operator, in the spring of 2018. By cutting prices, the latter has since made its nest in the mobile market, and has recently launched in fixed Internet. For several months, rumors and attempts at consolidation have been rife in Italy. At the start of the year, Vodafone and Iliad worked well on a merger project in this country. Xavier Niel’s group has even formalized an offer of 11.25 billion euros for the Italian activities of its rival. But Vodafone rejected it, believing that it was “not in the best interest of its shareholders”. Nevertheless, the “no” are never, especially in the current context, definitive.
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