A surprise $4.4 billion investment in Vodafone shares from UAE-based telecommunications giant E&R on Monday gave a much-needed but possibly short-lived boost to British firm’s CEO Nick Reed.
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The company, formerly known as Etisalat, on Saturday said it has become the largest shareholder in Vodafone with a 9.8 per cent stake, attracted by its management, efforts to unlock value and a diversified currency base.
It refused to extend control or launch a full takeover.
However, analysts were divided on the group’s long-term plan for Vodafone by active investor Savian and other long-term shareholders to simplify its portfolio, repair the markets through consolidation and boost returns.
While analysts at JPMorgan said E&E could become more active over time, possibly in conjunction with Savian, Credit Suisse and Jefferies, said investment could give more breathing room to invest in assets. and could face pressure to sell operations immediately.
“Indeed, this could also allow Vodafone to make investment decisions that come at the expense of short-term free cash flow generation, as it has an industrial backing with a longer-term horizon,” Credit Suisse said.
Jefferies said that E&’s presence in the shareholder register can counteract proactive demands, and enables Vodafone to reset consensus demands, knowing that E&’s can increase its stake and publicize shares. Is.
Vodafone shares rose nearly 3 per cent in morning trading on Monday. However, when Reid moved from the role of finance director to the top position of CEO in October 2018, he remained nearly 25 percent below that level.
Shares were up 6.3 per cent in E&E.
With operations across Europe and Africa, Vodafone said it looks forward to building a long-term relationship with Etisalat and added that it continues to make good progress with its long-term strategic plans.
E&, or Etisalat, began life in the United Arab Emirates, but has since expanded to 15 other markets in the Middle East, Asia and Africa. Despite having lower revenues than Vodafone, it has higher margins and a market cap of $74.5 billion, almost twice that of the British company. It also has the firepower for more deals.
Vodafone, with 66.3 million mobile contract customers in Europe and 188 million in Africa, earlier this year it will pursue mergers in several European markets, assuming regulators will be more accommodating as they need to understand the value of network investments during the pandemic. was realized.
It has since rejected an approach to the group’s Italian assets and missed a deal between rivals in Spain.
It reports full-year results on Tuesday.
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