The Vodafone share price has gained a little under 3% in trading this morning after it was revealed over the weekend that a new investor acquired its 9.8% stake in the troubled telecom at a 10% premium. Emirates Telecommunications Group has just become the company’s single largest shareholder and paid a little over 129p a share compared to the 118p Friday closing price.
Even the current level of 121.12p-a-share reached today is some way below what the Emirates Telecoms Group paid for the stake, which cost it a total of $4.4 billion to acquire in a sign of faith in the company’s potential. The company is set to publish its full-year trading update tomorrow and chief executive Nick Read can expect shareholders to ask probing questions around its key markets consolidation strategy. Vodafone’s market cap is down by around 25% since Reid assumed his role in autumn 2018.
Emirates Telecoms, known as e& is based in Abu Dhabi has invested in Vodafone as part of its own strategy to broaden its exposure beyond the Middle East and Africa, where the majority of its interests are currently based. The company is run by Hatem Dowidar, who is closely connected to Vodafone, having previously been head of its Egypt business.
It took the new stake after meeting with the London-listed telecom’s board last month. The focus of that meeting was reportedly Vodafone’s growth strategy and it appears the investor was convinced by what it heard. The group has said it currently has no plans to push for a seat on the board or mount a takeover bid for the company and is supportive of the current board, management and strategy.
Jefferies analysts commented:
“We expect e& to counteract activist pressure, not add to it. Whether Vodafone now feels emboldened to reset expectations, or able to take its time, may become clearer tomorrow.”
The deal has, however, surprised markets and has been described as a “huge bet” on Vodafone’s ability to turn around a poor run that has seen its valuation decline by about 45% over the past five years. Reid previously commented that Vodafone was talking with “multiple parties on multiple markets” over potential deals and last week the Financial Times reported it has recommenced talks over a potential acquisition of the UK mobile operator Three.
The Emirates Telecoms deal will face scrutiny from government ministers who have been empowered by new national security laws designed to prevent key strategic UK assets falling under the control of foreign ownership. Especially where there are heightened concerns around potential security threats. The new laws were brought in to block the involvement of China’s Huawei in key national telecoms infrastructure projects.
A government spokesman is quoted by The Times as commenting on news of the deal with:
“The business secretary has powers under the National Security and Investment Act to intervene in acquisitions where necessary.”