e& splashes $4.4 billion on a near 10% stake in Vodafone

• e&, aka Etisalat, has acquired a 9.8% stake in Vodafone
• The investment has come out of the blue but looks positive for Vodafone
• e& supports the current Vodafone strategy and management
• The move heralds a potential new services and tech collaboration between the two operator groups
• Vodafone’s share price has edged up 2% on the news, so other shareholders do not appear to be spooked by the move

In a move that caught the telecoms industry by surprise, e&, the Middle Eastern operator formerly known as Etisalat Group, has acquired a 9.8% stake in Vodafone Group for about $4.4 billion. 

The company announced on Saturday 14 May that it had acquired almost 2.77 billion shares in Vodafone: The total amount paid for the stock suggests e& paid about 130 pence per share, a premium to the 118.1 pence per share that Vodafone’s stock was worth when the London markets closed last Friday. 

As part of its announcement, e&, which boasts 148 million subscribers across the Middle East, Asia and Africa, noted it “has no intention to make an offer for Vodafone,” so this is not the opening gambit of a takeover attempt. 

The Abu Dhabi-headquartered operator also noted that it “is fully supportive of Vodafone’s Board and existing management team and its current business strategy announced in November 2021,” which will come as a relief to the Vodafone board and management, as this signals that e& is not planning to be an ‘activist investor’ with plans to shake up Vodafone’s strategy (that particular pressure already exists). 

As a result of these placatory statements, other Vodafone shareholders don’t appear to have been spooked by the e& announcement, as the giant operator’s share price edged up by 1.8% to 119.9 pence on the London Stock Exchange in Monday morning trading. 

The move makes e& the largest single shareholder in Vodafone at a time when the UK-headquartered telco is coming under pressure from investors, particularly activist investor Cevian Capital, to revamp its portfolio through M&A deals. (See Vodafone plots major M&A moves in Europe, confirms CEO.)

But rather than shake things up, e&, which adopted its new brand identity in February, is looking to work with and learn from Vodafone. 

“e& has made the investment in Vodafone to gain significant exposure to a world leader in connectivity and digital services,” it announced in its stock market statement about the investment. 

“Vodafone is one of the strongest and most globally recognised brands across the telecom industry. It is a pioneer of digital transformation, offering some of the most advanced technology and next-generation solutions, including IoT and B2B solutions, within the telecom industry and for the benefit of the wider society. Vodafone’ strong reputation for being a leading digital-first operator, underpinned with its rigorous approach to corporate governance and well-regulated global footprint, makes it an attractive opportunity for e& at this current time,” it continued.

The investment “provides a clear opportunity to realise future value through potential capital gains and dividends. It may also lead to possible commercial partnerships in the areas of R&D, technological applications and procurement. The transaction is fully aligned to e&’s announced ambition to be a global player in telecom and technology and to increase its exposure to international markets,” it added.

In response, Vodafone noted that it looks forward to “building a long-term relationship with Etisalat,” that it is continuing to “make good progress with our long-term strategic plans,” and will provide an update in its full year results announcement on Tuesday (17 May). 

It’s worth noting, too, that both operators are invested in Open RAN programmes, so there may be some room for collaboration there too. (See Vodafone fires up its first commercial Open RAN site and Dish, Etisalat advance Open RAN plans.)

According to its most recent earnings report, e& has 148 million customers that generated revenues of 13.3 billion Emirati Dirham (US$3.62 billion) and a net profit of 2.4 billion Emirati Dirham ($654 million) during the first quarter of this year. It is aiming to position itself as a digital service provider and has created specific business units to address various business opportunities – e& life, for example, “brings next-generation technologies through smart connectivity platforms in entertainment, retail and financial technology,” while e& enterprise “focusses on maximising value through its end-to-end solutions in cybersecurity, cloud, Internet of Things (IoT) and Artificial Intelligence (AI).”

Vodafone, meanwhile, generated group revenues of €11.7 billion in its most recent reported financial quarter (to the end of December 2021) and has more than 300 million mobile connections across 21 operating markets in Europe, Africa and Asia. 

Vodafone’s latest full financial year results are announced tomorrow, when it is hoped CEO Nick Read will provide some insight into what to expect from the relationship. 

Kester Mann, Director Consumer and Connectivity at CCS Insight believes the “surprise move from e& could bring temporary relief to under-pressure Vodafone CEO Nick Read amid mounting influence from activist shareholder Cevian Capital. Indeed, the presence of a new, wealthy shareholder could offer welcome financial support for Vodafone’s fixed and mobile investments across its broad footprint. It could also bolster efforts to secure deals in competitive European markets such as the UK, Italy, Spain and Portugal, something Cevian is increasingly pushing for.”

As for e&, the “investment in Vodafone reflects an ambition set out earlier in 2022 to explore new avenues of growth, expand offerings and forge new partnerships. In particular, it is seeking to bolster its credentials in helping enterprises in their digital transformation journey. Few people expected this guidance to lead to an equity stake in one of the industry’s biggest global providers just a few months later; analysts will be monitoring its progress with interest,” notes Mann.

Industry analyst Paolo Pescatore, founder of PP Foresight, agrees that the move creates “opportunities for both Etisalat and Vodafone to work more closely to bring greater efficiencies and launch new products in more products globally,” and is “a strong endorsement of Vodafone’s strategy... It’s the first significant move by Etisalat to expand into Europe,” he adds, noting that the timing just ahead of Vodafone’s results announcement, is “interesting [amid] talk of consolidation in the rapidly converged European landscape.”

But both analysts believe the move will likely attract ongoing scrutiny. “The move will raise eyebrows and may lead to some tension with other shareholders who are keen to see Vodafone consolidate in key markets,” notes Pescatore, while CCS Insight’s Mann expects Vodafone “will still want to carefully monitor the long-term intensions of its unexpected new backer” despite the friendly nature of its investment.

 - Ray Le Maistre, Editorial Director, TelecomTV