Cevian slashes Vodafone stake as investors call for faster change

Europe’s largest activist investor Cevian Capital has slashed its stake in Vodafone as scepticism grows that the UK-based telecoms group will be able to reverse its sluggish performance amid a challenging economic backdrop.

Cevian built a significant but undisclosed position in the FTSE 100 group last year through shares and derivatives, becoming one of the 10 largest shareholders according to people familiar with the matter. It was pushing for management to simplify the group’s sprawling international portfolio and sell poorly performing divisions.

However the activist investor sold the vast majority of its stake by the end of June, the people said, due to changes in the economic environment including indications that interest rates would rise, reducing the chances Vodafone would be able to secure favourable deals.

Vodafone has shed nearly 25 per cent of its value since then.

The group is looking at a series of deals across Europe but other investors have expressed impatience over the pace of change and prospects of its flagging share price being revived.

“Would management change be taken well? I think it would,” said one top 15 investor adding that chief executive Nick Read, who joined Vodafone in 2001 and took the top job in 2018, has “been there for a long time . . . and he has not transformed the business”.

Peter Schoenfeld, another shareholder and founder of New York-based hedge fund PSAM, said investors are “frustrated and fed up with Vodafone’s poor stock performance” and that “it’s very much a show me kind of situation now”.

“Read has committed to a strategy that he has so far failed to fulfil,” he added.

Short positions in the company — used by investors to bet that the share price will go down — peaked in May, with 10 per cent of the stock out on loan, according to S&P Global Market Intelligence. This has since dropped below 2 per cent.

But others are still betting the stock will rise. French telecoms billionaire Xavier Niel has built a 2.5 per cent stake in the group and is angling for a shake up.

Recent activity suggests Read is making good on his ambition to pursue deals. In August, Vodafone agreed to sell its Hungarian business for $1.8bn and earlier this month confirmed it was in advanced talks with CK Hutchison, owner of Three, to combine their UK businesses and create the biggest mobile operator in Britain. It also announced a deal to buy MasMovil’s telecoms assets in Portugal, and hired bankers to help look at selling its broadband business in Spain.

However Vodafone’s share price has fallen around 10 per cent over the past month, and 50 per cent over the past five years, to 100p.

Several investors have misgivings about whether the UK joint venture being proposed — with Vodafone as 51 per cent shareholder — would be given the green light by regulators, and if it is liable to create an even more convoluted business.

“We started off the year thinking regulators are more open to [deals], but that’s yet to be seen,” said the top 15 investor.

Some investors and analysts also expressed concern about the level of net debt on the UK group’s balance sheet — at £42bn — given rising interest rates.

“Vodafone tells us it’s all hedged and termed out but . . . hedges don’t always work as we think they will,” said the top 15 investor, who has also reduced their holding in recent months. “They’re trying to do some of the right things with consolidation but with that amount of debt . . . they can’t afford an [earnings] squeeze.”

Another source of frustration is a long-awaited decision over Vodafone’s 80 per cent stake in its Vantage Towers masts business, which would help reduce debt.

Read explored a merger with either Deutsche Telekom or Orange but is now reverting to the idea of selling a stake to private equity. The delay has angered some.

“It’s a statement of fact that they would have got a much better price for these assets a year or 18 months ago,” said the top 15 investor.

Vodafone said in a statement that “the macroeconomic backdrop is challenging for everyone. We continue to progress opportunities with Vantage Towers, strengthen our market positions in Europe, and prioritise the deleveraging of our balance sheet.” It declined to comment on Cevian reducing its stake.