(Bloomberg) – At Vodafone Group Plc’s headquarters in west London, a sign hangs near CEO Nick Read’s office, telling passersby, “It’s okay to make mistakes.”
For three-and-a-half years in his tenure as CEO, with activist investors and hedge funds on the alert, 57-year-old Read deflects media reports of “pressure” and in fact does not admit to making any major mistakes himself. “My view is that every CEO of FTSE has pressure,” Read said in an interview with Bloomberg. “It just comes with the job.”
Read worked at Vodafone for 21 of the company’s 38 years of existence. However, the middle-aged CEO of a middle-aged company says he wants to take a risk on technical style, avoiding traditional caution on telecommunications to bolster capital gains.
Vodafone’s challenges differ, however, from those faced by Silicon Valley technology giants. Instead of pivoting to the metaverse, Read has been involved in cutting costs, standardizing internal information technology systems and selling units in New Zealand and Malta. He also cut out and listed the group’s mobile mast operation, planning to tap into high valuations for infrastructure and pay down debt.
Vodafone was founded in 1984 and sees itself as a pioneer. However, as it approaches its fifth decade, many of its stellar achievements are now reminders of a distant past. Its network carried the first mobile phone call in the UK, on January 1, 1985. The company was then leading the development of text messaging technology, and was rapidly expanding worldwide.
Its shares peaked during the semicolon explosion, giving it a market capitalization of £ 214 billion in March 2000. Today they are nearing a 20-year low, less than 20% even since Read started as CEO in October 2018.
Vodafone has spent the last decade retiring and is now pressed between former state monopolies like Deutsche Telekom AG, newer, price-reducing participants like Iliad SA, Big Tech and regulators. In the UK, key rival EE, owned by BT Group Plc, is making capital gains, while Vodafone may not, according to regulator Ofcom.
Against that background activist investors and hedge funds are now moving, with some implying that the company could find better leadership.
The only regret Read will admit is that he didn’t move faster to standardize technology. He has not regretted speeches since November in which he outlined ambitions to make deals in Britain, Italy, Spain and Portugal. This surprised even colleagues who feared that their CEO might weaken Vodafone’s negotiating position, according to a person familiar with the discussions.
Read’s speech raised expectations of functional mergers with rivals that could boost performance in Europe’s saturated and highly regulated mobile telecommunications industry. After seven months, no deals have been made – and the background noise is getting louder.
P. Schoenfeld Asset Management LP, a New York hedge fund, was quoted in the Financial Times in April as criticizing the missed management opportunities. Jupiter Corporate Bond Fund also demanded faster deals. Cevian Capital AB, Europe’s largest asset fund, has built a secret investment in Vodafone and wants to see deals and less centralization at the company, according to people familiar with the discussions. All three investors declined to comment.
Read remains innocent. “My point is much more about: Do you feel like you have a clear vision of where you’re going?” he said. “Sometimes with media, you get some hedge funds with very small positions are very noisy because they are held,” he added. “So it’s in their best interest to energize the media.”
He explained that he was not talking about Cevian: “To be fair to them, I haven’t seen them quoted about anything yet.”
Hunting for Deals
Investors hope that regulators’ caution – which saw deals like Three’s bid for O2 blocked in the UK in 2016 – is now a thing of the past. The question is why Vodafone has not already made some deals.
In February, it negotiated a deal between Vodafone Espana and a privately owned airline owned by 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 an Orange representative did not respond to requests for comment.
Read also rejected an 11.3-billion-euro bid for Vodafone Italia by Iliad and Apax Partners, saying it was not in the interests of shareholders. Talks with CK Hutchison Holdings Ltd on an agreement with Three UK have not yet yielded results. British landline provider TalkTalk Telecom Group Ltd is another choice, but during a recent revenue call, Read implied that a UK mobile phone deal was a higher priority.
Read says major investors such as Emirates Telecommunications Group Co. PJSC, now known as e &, are certain. Run by former colleague Hatem Dowidar, e & bought 9.8% of Vodafone shares in May and offered full-backed support. Abdrn plc, the company’s 8th largest owner with 1.7%, also stands next to Read. “We support Nick Read’s strategy and are committed to giving him time to implement it,” said Andrew Millington, its British chief executive.
Read also works on other options. Buried in Vodafone’s year-round earnings report earlier this month was a new plan to shut down the company’s fast-growing Internet of Things business, now earning 900 million euros in revenue. The company also owns Africa’s largest mobile phone service, M-Pesa, and has made a heavy investment in 5G networks that could support smart cities and factories.
Read has other complaints to defend. Centralization – of decision-making and technology – has left leaders outside Vodafone’s UK headquarters less autonomous and accountable, three people familiar with the company said. This could make it difficult for outsiders to split the group, it has been suggested. Three years after a € 18.4 billion deal, Vodafone Deutschland – which is making as much profit as the rest of Read’s European units – needs technological upgrades. Again, however, there are no regrets.
“A very small minority of certain people have tried to argue that there is complexity in our model,” Read said, saying the Vodafone model offers local autonomy with shared service centers. “We never use the word centralize.”
Read sometimes shocked investors. In 2018, weeks in the CEO position, he promised to keep the dividend, only to cut it six months later. Shares plunged a year ago after Read announced unexpected online investments. The company also had to review its board after Olaf Swantee, the former CEO of EE, lasted only two months.
Some people familiar with Read’s management style described him as “good”, calling him a good listener and a good leader. However, three people pointed fingers at his main team. They wondered if Read had surrounded himself with the strongest talent.
Read said his executive committee is “excellent,” though he also said “some are asked to leave” through the business. “We are show culture. So I’m kind – to the point. “
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