Vodafone/Elliott: activist seeks an opportunistic gain from tower sale

Nick Read riled shareholders with efforts to tame the multi-country hydra that is Vodafone. He was ousted. Interim replacement Margherita Della Valle says the UK-based mobile operator “can do better”. That is certainly Elliott Management’s view of the complex sale of the Vantage Towers subsidiary led by Read. The US activist has taken an exposure of more than 5 per cent to Vantage stock.

The unexpected intervention underlines the importance of scenario planning for other would-be dealmakers.

Vodafone split off and listed telecom tower group Vantage in Germany in 2021. Infrastructure with reliable incomes merited high valuations because rates were low. But after the market worth peaked at about €16.5bn last spring, Vantage stock dropped by a quarter as rates moved up.

The valuation returned to previous highs thanks to the partial sale plan. Vodafone would participate in a Vantage joint venture with investors including KKR, and General Infrastructure Partners. The deal requires the JV owners to buy out 18 per cent held by minority investors. They would receive €32 a share.

Elliott’s gambit depends on German securities law protecting minorities from premature squeeze-outs.

The JV controls about 89 per cent of Vantage, but not the required 95 per cent. If Elliott does not sell, Vodafone and its partners can still operate Vantage, under a “domination agreement”. But that would allow Elliott to bring German litigation requiring a revaluation of Vantage.

This legal process lasts at least five years. Under German law, Elliott would be likely to receive compensation in lieu of dividends set at 5 per cent a year above German short-term rates, currently slightly more than 1.6 per cent.

A court might or might not bump up the Vantage valuation. If Vodafone and its JV partners do not fancy waiting, they may have to pay Elliott and other minorities more for their shares, currently valued at about €800mn.

Read might have foreseen Elliott’s intervention, given that it did something similar at Kabel Deutschland. But foresight does not appear to have been his strong point.