Cevian cuts Vodafone stake as investors demand faster change

Europe’s biggest activist investor Cevian Capital has reduced its stake in Vodafone amid growing skepticism that the UK-based telecoms giant will be able to reverse its weak performance amid a difficult economic backdrop.

Cevian built a significant but undisclosed position in the FTSE 100 group through equities and derivatives over the past year, becoming one of the top 10 shareholders, according to people familiar with the matter. It pushed management to streamline the group’s sprawling international portfolio and sell underperforming businesses.

However, the activist investor sold the majority of its stake by the end of June, the people said, due to changes in the economic environment, including signs that interest rates were rising, reducing Vodafone’s chances of landing cheap deals.

Vodafone has lost nearly 25 percent of its value since then.

The group is reviewing a range of deals across Europe, but other investors have expressed impatience at the pace of change and the prospects of a rebound in the declining share price.

“Would a change in management be well received? I think so,” said one top 15 investor, adding that CEO Nick Read, who joined Vodafone in 2001 and took the top spot in 2018, “has been there a long time. . . and he didn’t change the business.”

Peter Schoenfeld, another shareholder and founder of New York-based hedge fund PSAM, said investors were “frustrated and fed up with Vodafone’s poor stock performance” and that “it’s sort of a show-me situation now.”

“Read has committed to a strategy that he has never been able to deliver on,” he added.

According to S&P Global Market Intelligence, short positions in the company — bets by investors that the share price will decline — peaked in May when 10 percent of shares were on loan. This has now fallen below 2 percent.

But others are still betting the stock will rise. French telecoms billionaire Xavier Niel has taken a 2.5 percent stake in the group and is seeking a restructuring.

Recent activity suggests that Read is realizing his ambition to do business. In August, Vodafone agreed to sell its Hungarian business for $1.8 billion and confirmed earlier this month that it was in advanced talks with Three’s owner, CK Hutchison, to combine its UK businesses and the to set up the UK’s largest mobile operator. It also announced an agreement to buy MasMovil’s telecom assets in Portugal and hired bankers to help sell its broadband business in Spain.

However, Vodafone’s share price has fallen around 10 per cent in the last month and 50 per cent over the past five years to 100 pence.

Several investors have concerns about whether the proposed UK joint venture – with Vodafone as a 51% shareholder – would get the green light from regulators and whether it would likely create an even more complicated deal.

“We started the year thinking regulators would be more open to it [deals]but that remains to be seen,” said the top 15 investor.

Line chart of share price change since Jan 2020 (%) showing Vodafone lags behind European peers

Some investors and analysts also expressed concern about the £42 billion level of net debt on the British group’s balance sheet amid rising interest rates.

“Vodafone tells us everything is secured and negotiated, but . . . Hedges don’t always work the way we want them to,” said the top 15 investor, who has also reduced his holdings in recent months. “They’re trying to do some of the right things with consolidation, but with this amount of debt. . . they can’t afford one [earnings] to press.”

Another source of frustration is a long-awaited decision on Vodafone’s 80 percent stake in its Vantage Towers tower business, which would help reduce debt.

Read considered a merger with either Deutsche Telekom or Orange, but is now returning to the idea of ​​selling a stake to private equity. The delay has upset some.

“The fact of the matter is that a year or 18 months ago they would have gotten a much better price for these assets,” the top 15 investor said.

Vodafone said in a statement that “the macro backdrop is challenging for everyone. We continue to develop opportunities with Vantage Towers, strengthen our market positions in Europe and prioritize deleveraging our balance sheet.” It declined to comment on Cevian’s reduction.

https://www.ft.com/content/4be57a17-216f-43b0-b616-c972266f39bc Cevian cuts Vodafone stake as investors demand faster change

Adam Bradshaw

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