Vodafoneplaced the UKs first cellular phone call. Its CEOwants to keep taking risks even as the companynears its 40th birthday.
At Vodafone Group Plc headquarters in west London, a sign hangs near the office of Chief Executive Officer Nick Read,telling passers-by: Its OK to make mistakes.
Three-and-a-half years into his tenure as CEO, with activist investors and hedge funds on alert, 57-year-old Read deflects media reports of pressure and doesnt actually admit to making any big mistakes himself.My view is every FTSE CEO has pressure, Read said in an interview with Bloomberg.It just comes with the job.
Read has worked at Vodafone for 21 of the companys 38-year existence.Nevertheless, the middle-aged CEO of a middle-aged company says he wants to embrace tech-style risk, eschewing traditional telecoms cautionin a bid to boostreturns on capital.
Vodafones challenges are different, though, from thosefacedby Silicon Valley tech giants. Instead of pivoting to the metaverse, Read has been busy cutting costs,standardizinginternal information technology systems and sellingoff units inNew Zealand and Malta. Hehas also carved out and listed the groups mobile masts operation, aiming to tap into high valuations for infrastructure and to pay down debt.
Vodafone was founded in 1984 and sees itself as a pioneer. Yet as it approaches its fifth decade,many of its stellar achievements are now reminders of a distant past. Its network carried the first cellular telephone call in the UK, on Jan. 1, 1985. The company thenled the rollout of out text-message technology, and was quick to expand globally.
Its sharespeaked during the dotcom boom, giving it amarket capitalization of214 billion in March 2000.Today theylanguishnear 20-year lows, down 20% even since Read started as CEO in Oct.2018.
Vodafonespent the last decade retrenching andis now squeezed between former state monopolies like Deutsche Telekom AG, newer, price-cutting entrants such as Iliad SA, Big Tech and regulators. In the UK, key rival EE, owned by BT Group Plc, ismaking a return on capital, while Vodafone may not be, according to regulator Ofcom.
Against that backdrop activist investorsand hedge funds are now stirring, with some implying that the company could find better leadership.
The only regret Read will admit to is that he did not move faster to standardize technology.He doesnt regret speeches sinceNovemberin whichhe outlined ambitions to strikedeals in the UK, Italy, Spain and Portugal. That surprised even company insiders, who worried their CEO might be weakening Vodafones negotiating position, according to a person familiar with the discussions.
Reads speech increased expectations foroperational mergerswith rivals that could boost returns in Europes saturated and heavily regulated mobile telecoms industry.Sevenmonths on, no deals have materialized andthe background noise is getting louder.
P. Schoenfeld Asset Management LP, a New York hedge fund, was quoted in the Financial Times in Aprilcriticizing managements missed opportunities. Jupiter Corporate Bond Fund also called for faster deals. Cevian Capital AB, Europes biggest activist fund, has built an undisclosedstake in Vodafone and is keen to see deals and less centralization at the company, according to people familiar with the discussions. All three investors declined to comment.
Read remains unapologetic. My view is a lot more about: Do you feel you have a clear vision of where youre going? he said.Sometimes with media, you get a couple of hedge funds with very small positions being very noisy, because theyre event-driven, he added. So its in their interest to stoke up media.
He clarified he wasnt talking about Cevian: To be fair to them, I have yet to see them quoted on anything.
Investors hope that regulators caution which saw deals like Threes bid for O2 blockedin the UK in 2016 is now a thing of the past. The question is why Vodafone hasnt already struck some deals.
In February, it negotiated an agreement betweenVodafone Espana with private-equity owned carrier Masmovil, according to two people familiar with the matter only to see Masmovil and Orange SA announce a merger of their own days later, leaving Read on the sidelines. Vodafone and Masmovil declined to comment, and a representativefor Orange didnt respond to requests for comment.
Read also turned down an 11.3-billion euro Februaryoffer for Vodafone Italia from Iliadand Apax Partners, saying it wasnt in shareholders interests. Talks with CK Hutchison Holdings Ltd about a deal withThree UK have yet to yield results. British landline provider TalkTalk Telecom Group Ltd is another option,but on a recent earnings call, Read implied that a UK mobile deal was a higher priority.
Read says top investors, such as Emirates Telecommunications Group Co. PJSC, now known ase&, are confident.Run byformer colleague Hatem Dowidar, e&bought9.8% of Vodafone shares in May and offered a full-throated endorsement.Abdrn plc, the companys 8th-largest holder with 1.7%, also stands by Read.We are supportive of Nick Reads strategy and in favor of giving him time to execute on it, said Andrew Millington, its head of UK equities.
Read is also working on other options. Buried in Vodafones full-year results presentation earlier this month was a new plan to spin out the companys fast-growing internet-of-things business, now pulling in 900 million euros in revenue. The company also owns Africas huge mobile money service, M-Pesa, and has made heavy investment in 5G networks,which could underpin smart cities and factories.
Read has other complaints to fend off.Centralization of decision-making and technology has left leaders outside of Vodafones UK headquarters less autonomous and accountable, three people familiar with the company said. That couldmakeit harder for outsiders to break up the group, one suggested.Three years after an 18.4 billion-euro deal,Vodafone Deutschlandwhich makes as much profit as the rest of Reads European units put together has neededtechnology upgrades.Once again, though, there are no regrets.
A very small minority of certain people have been trying to argue theres complexity in our model, Read said, saying that Vodafones model offers local autonomy with shared service centers.We never use the word centralize.
Read has occasionally shocked investors. In 2018, weeks into the CEO job, he pledged to keep the dividend, only to cut it six months later. A year agoshares plunged after Read announced unexpected network investments. The company also had to overhaul its board after Olaf Swantee, the former CEO of EE, lasted just two months.
A number of people familiar with Reads management style described him as nice, calling him a good listener anda good leader. However, three people pointed fingers at his top team. They wondered whether Read has surrounded himself with the strongest talent.
Read said his executive committee is excellent, though he did alsosay thatsome are asked to leave across the business. Were a performance culture. So I am nice to an extent.
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Vodafone Mobile Phones Were the Future Once. Now What Happens? - HT Tech
