The UK’s mobile market might have a significant shake-up on the way after the owner of Virgin Media-O2 bought into Vodafone (VOD) and said the sector was ripe for more consolidation. Vodafone has already floated a combination with Three UK, talks over which are ongoing.
Liberty Global, which owns telecoms businesses across Europe, took a 4.92 per cent stake in Vodafone on Friday. The stake – which Vodafone revealed post-close on 13 February – is worth around £1.2bn. The investment sent the company’s share price up 3.5 per cent.
Liberty Global chief executive Mike Fries said Vodafone was good value despite recent struggles. “We believe, like many others, that Vodafone’s current share price does not reflect the underlying long-term value of [its] operating business, or [its] announced consolidation and infrastructure opportunities,” he said.
In the past year, Vodafone’s share price has fallen 29 per cent. Inflation is increasing costs while squeezing its customers. In its half-year results, the company lowered its full-year cash flow guidance by 4 per cent, blaming rising energy costs. It is also losing business in Germany, Italy and Spain, with organic revenue falling in all those countries year on year last quarter.
These problems lost previous chief executive Nick Read his job last year. It also drove away activist investor Cevian who lost patience after believing Vodafone was undervalued. Cevian dumped the remainder of its stake at the beginning of the year, having built it over the course of 2021.
The hope with Vodafone is it will be able to offload some of its assets and consolidate in its most profitable markets. It already sold its Hungarian business and entered a joint venture for its Vantage Towers business.
New chief executive Margherita Della Valle said at the start of the month that changes were already taking place. “We’ve already taken action, including simplifying our structure to give local markets full autonomy and accountability to make the best commercial decisions for their customer,” she said. The former chief financial officer is also continuing a €1bn (£880mn) savings plan launched by Read.
US-headquartered Liberty Global “expects that the equity used to fund this investment will be replenished with the sale of certain non-core assets over time”. It is not considering a full offer for the business, as per its statement.
