LONDON (Reuters) – Shares in Vodafone rose 4% on Monday after reports that activist investor Cevian Capital had bought an undisclosed stake in the mobile group to encourage it to lead a consolidation drive in Europe.
Analysts and investors welcomed the move after the British company’s shares languished during the two years of the pandemic, held back by competition in markets such as Italy, Spain and Portugal.
Chief Executive Nick Read, Vodafone’s former CFO who has been in the top job since Oct. 2018, has called for more consolidation in Europe and said it was willing to pursue merger opportunities for its Vantage Towers infrastructure spin-out.
He has already completed 19 transactions, helping it focus on Europe and Africa.
The call for consolidation reflects a growing belief in the industry that Brussels may be more open to in-country deals to reduce the number of operators in each market, enabling them to extract greater returns and invest more in their networks.
A need to invest in networks, highlighted during the pandemic, follows many years when regulators in Europe prioritised the needs of consumers, requiring four or five operators in each market to compete and keep prices low.
The biggest players in European telecoms are Vodafone, Deutsche Telekom, France’s Orange and Telefonica. Vodafone reports quarterly results on Wednesday.
The Financial Times said Cevian, Europe’s largest activist fund, wanted Vodafone to be more aggressive in driving consolidation in markets such as Spain, Italy and the UK.
Reuters reported earlier this month that Vodafone and Iliad were in talks to combine their businesses in Italy.
Bloomberg first reported the Cevian development. Both Vodafone and Cevian declined to comment.
Victoria Scholar, Head of Investment at Interactive Investor, said Vodafone had been sucked into a battle on price.
“Unless drastic action is taken to overhaul Vodafone, the stock looks set to continue to underperform the FTSE 100, at a time when the UK market is looking increasingly compelling from a valuation perspective, having underperformed other global indices since Brexit,” she said.
The arrival of Cevian comes as activist investors take an increasing role in Britain, with reports that Nelson Peltz’s Trian Partners has built a stake in Unilever, and news that Patrick Drahi now owns 18% of BT.
(Reporting by Kate Holton, Editing by Louise Heavens)
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