Analysis | Vodafone Is an MBA Case Study of Messed-Up M&A - The Washington Post

2 years ago 35

There’s hidden worth successful Vodafone Group Plc, the sprawling telecoms institution whose marketplace capitalization has shed much than $50 cardinal successful astir 5 years. It offers concern students a acquisition successful the good, the atrocious and disfigured of mergers and acquisitions. The lone happening missing is the eventual deal: a break-up bid.

Things aren’t going well. The shares recently slid beneath the intelligence 100 pence level. The contention has been whipping Vodafone successful Germany, its main market. Management is struggling to person investors that precocious indebtedness from dealmaking volition travel nether control. Activist Cevian Capital AB gave up connected the banal earlier this year, but telecoms billionaire Xavier Niel has taken its spot arsenic a imaginable agitator.

Rewind to 2013 and it’s hard to judge Vodafone could person got into specified a pickle. Then-Chief Executive Officer Vittorio Colao agreed to an exit from its associated task with Verizon Communications Inc. for $130 billion. Most of the outgo received — mainly a premix of currency and Verizon shares — was funneled to shareholders. That was a large deal making a hiatus successful years of empire building. Sadly, the sequels successful this M&A saga person been a letdown.

Vodafone added cablegram infrastructure to its portfolio pursuing a alleged convergence strategy to merchantability phone, net and pay-television services. Having offered $11 cardinal to take control of Kabel Deutschland Holding AG successful Germany, it past gobbled up Spain’s Grupo Corporativo ONO SA for $10 billion. The Spanish marketplace later became viciously competitive.

In 2018 came the $22 cardinal acquisition of assets from rival Liberty Global Plc. This filled gaps successful Vodafone’s German coverage. Less than a week aft the announcement, Nick Read, past main fiscal officer, was announced arsenic Colao’s successor and fixed the mammoth integration job. True, Colao had been brag astir 10 years, but the succession was hardly ideal. Vodafone shares person severely trailed European peers ever since.

To beryllium fair, the thought of becoming a bundled telecoms supplier made sense, and it would person taken years to physique this from scratch alternatively of doing acquisitions. The snag is that Vodafone has not tally the assets well. Having initially reaped synergies, mediocre lawsuit work has seen it suffer German marketplace share. If you bash costly M&A, you person to beryllium a flawless manager of what you buy.

Vodafone besides took connected a batch of debt. It’s a good judgement, but it would person been wiser to clasp much of the astir $80 cardinal returned to shareholders aft the Verizon woody and support much headroom.

Then determination are the deals Vodafone didn’t do, oregon took its clip over. Its assets span Europe and emerging markets. Yet what matters astir successful telecoms is standard wrong not crossed borders, portion a multinational footprint adds complexity for investors. Vodafone could person done much to absorption connected prime markets in Europe portion uncovering amended owners for everything else. That would person accelerated indebtedness simplification and made the institution a much manageable beast.

Earlier this twelvemonth Vodafone passed connected a woody with Masmovil Ibercom SA, letting Orange SA bargain a march connected Spanish consolidation. And portion this month’s statement connected a partial merchantability of its mobile towers volition chopped leverage, it’s a governance fudge with a consortium of backstage equity and Saudi Arabian money. It would person been amended to bash a consecutive disposal years ago.

There is nary rabbit that CEO Read tin present propulsion from the hat. Regulators are apt to beryllium much wary of permitting consolidation wrong Vodafone’s markets erstwhile consumers are stretched. A mooted operation with Three UK, owned by CK Hutchison Holdings Ltd., has yet to materialize.

Read’s champion stake is to tally the operations better, chopped costs and grasp any M&A opportunities that luck presents hereon. He could besides beryllium clearer that shareholders volition payment arsenic indebtedness comes down. Analysts astatine New Street Research spot imaginable for a 4.9 billion-euro ($5.1 billion) currency instrumentality if things spell well.

A smaller institution with this grounds would beryllium a takeover people itself. Vodafone’s endeavor value, exceeding $90 billion, offers extortion from that threat. The phantasy woody would beryllium a good organized consortium of buyers looking to carve up the steadfast betwixt them. If that loomed, defending the presumption quo would beryllium a immense challenge.

It’s up to Chairman Jean-François van Boxmeer to determine whether Read is successfully leading Vodafone retired of the mire. But immoderate CEO present would person the aforesaid constricted options for turning this monster around.