Vodafone becomes activist target

While the FTSE 100 has been enjoying a comeback this year with a better performance than many other major markets globally, it is also home to numerous sleepy or mis-managed companies ripe for being shaken up by activist investors.

We’ve already got campaigns to change GlaxoSmithKline, Shell, Unilever, Aviva and SSE, and there is also an activist investor on the shareholder register of Sainsbury’s. Now it seems that Vodafone is the next FTSE 100 company set to be shaken up.

“Unlike most situations where an activist pops up on the shareholder register, Vodafone already has a plan in place to sharpen the focus of the business,” said AJ Bell’s Russ Mould.

“That has so far included spinning off Vantage Towers, refocusing the portfolio through a range of disposals and mergers, and positioning the company for ever-greater consumption of data via mobile and fixed-line broadband networks. Dividends have also been cut to a more sustainable level.

“However, the reshaping of Vodafone has yet to result in any meaningful re-rating by the market – the shares are no higher now than they were in 1998.

“The debt burden which resulted from the Liberty Global cable deal in Europe, fierce competition in core mobile markets and a plunge in roaming business owing to the pandemic’s impact on global travel all continue to weigh, as does a group structure which still really makes Vodafone look like an investment fund which just owns as collection of telecoms assets.

“Looking at the classic list of activist strategies, Vodafone is the sort of name which might pop up on a hitlist – terrible share price performance, unwieldy group structure and potential for strong cash generation.

“However, its monster €44 billion debt pile looks to limit the scope for an increased share buyback scheme or higher dividends, at least in the absence of asset sales.

“Perhaps, therefore, Cevian will push for a further refinement of the portfolio through mergers or sales in a sector which has recently seen quite a bit of activity, including KKR bidding for Telecom Italia and Patrick Drahi and Altice snapping up a stake in BT.”