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UAE Telecom Firm Pays $4.4 Billion for 9.8% of Vodafone

Bloomberg logo Bloomberg 4 days ago Anthony Di Paola and Jack Sidders

(Bloomberg) --

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Vodafone Group Plc is starting the trading week with a new largest shareholder, a show of support at a time when the telecommunications giant has been under pressure to improve its returns.

Emirates Telecommunications Group Company PJSC bought a 9.8% stake for $4.4 billion -- offering about 130 pence ($1.59) a share, according to Bloomberg calculations. The price represents a premium of about 10% to Friday’s closing price for Vodafone shares, which have been trading at only about half of their 2018 high.

Unlike the pressure activist Cevian Capital AB has been putting on Vodafone to simplify the business and pursue deals to improve returns, the United Arab Emirates-based technology company -- formerly known as Etisalat Group and now called e& -- says it’s just pursuing global diversification. It said it wants to remain a long-term investor and won’t make an offer for the rest of Vodafone.

State-controlled e& “made the investment in Vodafone to gain significant exposure to a world leader in connectivity and digital services” and wants to develop opportunities for commercial partnerships, the company said in a stock exchange statement on Saturday.

The purchase pushes e&’s stake in Vodafone ahead of BlackRock Inc., the Vanguard Group Inc., and HSBC Holdings Plc, according to Bloomberg data. 

Shares underperform European peers in past year © Bloomberg Shares underperform European peers in past year

“We look forward to building a long-term relationship” with e&, Vodafone said in a statement. 

Vodafone oversees a sprawling portfolio across more than 20 countries serving over 300 million wireless customers. Its European operations include units in the U.K., Germany, Italy and Spain. Vodafone is also a major player in sub-Saharan Africa and has a joint venture in India. 

While Vodafone’s shares were up almost 5% this year through Friday, they’re not far from the lows of the dot-com crash in 2002, leaving it susceptible to pressure from activists such as Cevian. Vodafone is particularly on the lookout for deals in the UK, Spain, Italy and Portugal to consolidate and increase scale. 

Read More: Activist investor Cevian is said to build Vodafone stake

For its part, e& is stepping up deal activity after focusing on organic growth in recent years. 

The company is seeking to buy out the rest of its Saudi Arabian unit in a $2.1 billion deal and has built a presence in several emerging markets in Asia and Africa. Its purchase of a stake in Vodafone echoes French billionaire Patrick Drahi’s accumulation of an 18% share in BT Group Plc. Drahi, the president of telecommunications company Altice, has said the BT deal is a financial investment.

Read More:Drahi Tightens Grip on BT’s Future, Raises Stake to 18%

E& could look to emulate Drahi’s move and increase its stake over time, James Ratzer, an analyst at New Street Research, wrote in a note Saturday. That would likely require talks with the UK government to set out the company’s thinking and court political approval before increasing it further.

“This move will certainly trigger a lot of future discussion -– certainly only two days before Vodafone’s full-year results,” Ratzer wrote in the note. 

The UAE -- in moves similar to that of larger neighbor and business rival Saudi Arabia -- is looking to prepare its economy for a post-oil era, investing their wealth into growth industries abroad.

“Our investment represents a unique opportunity to acquire a significant stake in one of the leading and strongest global telecom brands,” e& Chief Executive Officer Hatem Dowidar said in the statement.

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