Economy

ALEX BRUMMER: Vodafone looks like a sitting duck for overseas buyers

The writing was on the wall for Nick Read ahead of last month’s labyrinthine sale of Vantage Towers, which saw Vodafone divest itself of a large stake in the German-listed company in a bid to ease its debt burden.

Rather than providing the desired boost, the deal was a reminder that Vodafone is a failed M&A machine.

Under Read’s leadership, the share price plummeted 45 percent to less than a pound, ending a long streak of sub-octane performance that has seen it shrink from over 200p five years ago to today’s levels.

Faulty connections: Vodafone consists of a ramshackle collection of telecom assets, is over-exposed to the moribund German consumer market and has a reputation for making bad deals

Born out of engineers Racal in the 1990s, Vodafone is one of the UK’s true technology pioneers. It offers a metaphor for Britain’s productivity, management and shareholder failure.

Rather than aiming to become the global leader in mobile telephony, it has engaged in a sell-off of valuable assets over the years, driven by an intense focus on keeping investors happy with payouts.

As a result, Vodafone now consists of a ramshackle collection of telecom assets, is overexposed to the moribund German consumer market and has a reputation for being unable to execute deals efficiently.

This is evidenced by the inability to complete the much-lauded merger with Hutchison’s Three network.

Vodafone once strode across the world like a colossus. It set a precedent for takeovers of German companies when it bought Mannesmann in 2000.

It owned and marketed the largest mobile phone network in Japan. And it was a 45 percent minority investor in Verizon Wireless, which it sold for £78.4 billion in 2014. Vodafone is now worth £25 billion. That is value destruction on a large scale.

Investing in the future has seen AstraZeneca in stark contrast to a foreign takeover of Pfizer in the same year and has nearly tripled its value to £173bn.

Read struggled, but he is made a scapegoat by chairman Jean-François van Boxmeer and the board for years of disappointing performance.

Read was removed after an emergency council meeting on Sunday. For now, it’s up to Margherita Della Valle, the finance director, to clean up the mess.

What is desperately needed is someone with the vision to simplify a disparate collection of holdings and bring out the best parts of Vodafone.

Africa offers opportunities for growth. It will be crucial to make its investment in Continental Europe, from Germany to Spain, sing, with great pressure on the content. Getting the Three deal done in the UK would be a plus, but it’s a gamble due to competition concerns.

A battered share price, lowered British pounds and a temporary CEO could make Vodafone a sitting duck for foreign buyers. Regulators beware.

Self help

Memory is a funny thing. When Liz Truss and Kwasi Kwarteng released the disastrous mini-budget in September, the CBI approved many of the proposals.

The CBI’s latest report on the economy made no mention of this. Instead, Director-General Tony Danker harked back to Rishi Sunak’s Mais lecture in February this year, when the then Chancellor made staggering promises to help invest and innovate. Most of the pledges have been sworn in the name of fiscal orthodoxy.

Danker complains about the UK’s failure to invest in capital, people and ideas. But whose responsibility is that? The business community itself, as Vodafone demonstrates, must take some of the blame.

Sunak offered a double deduction for post-pandemic capital investment, but despite its digital transformation opportunities, it has been very little taken up.

It is no coincidence that some of the better run companies in the UK are foreign. I think of Akzo Nobel, heirs of ICI and Dulux paints.

It has put enormous effort into R&D and innovation in building UK and global markets. The government can help, but CBI players need to look at themselves.

Art of the deal

Bob Diamond is always looking for a deal. His protege Rich Ricci’s recent attempt to merge with broker FinnCap failed.

Now we are learning from the US that Diamond-backed special-purchase vehicle Circle has failed to get its £7.5 billion stablecoin scheme off the ground.

Diamond’s nose for bargains is legendary (think buying Lehman’s US arm for Barclays) and was mentioned over the weekend as a possible buyer of Credit Suisse’s investment banking arm.

He is nobody’s quitter.

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Jacky

The author of what'snew2day.com is dedicated to keeping you up-to-date on the latest news and information.

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