Vodafone placed the first mobile phone call in the UK. The CEO wants to continue taking risks, even as the company approaches its 40th anniversary.
At Vodafone Group Plc’s headquarters in west London, a sign hangs near the office of Chief Executive Officer Nick Read, telling passers-by: “It’s OK to make mistakes.”
Three and a half years into his tenure as CEO, with activist investors and hedge funds wary, 57-year-old Read fends off media reports of “pressure” and doesn’t really admit that he’s made any major mistakes of his own. “My view is that every FTSE CEO is under pressure,” Read said in an interview with Bloomberg. “It’s just part of the job.”
Read has spent 21 of the company’s 38 years at Vodafone. Nevertheless, the middle-aged CEO of a middle-aged company says he wants to embrace technology-style risk, eschewing traditional telecom prudence in an effort to boost returns on capital.
However, Vodafone’s challenges are different from those facing Silicon Valley’s tech giants. Rather than turning to the metaverse, Read has been busy cutting costs, standardizing internal information technology systems and selling units in New Zealand and Malta. He has also broken down and listed the group’s mobile masts operation, aiming to tap into high infrastructure valuations and pay off debt.
Vodafone was founded in 1984 and sees itself as a pioneer. But as it approaches its fifth decade, many of its great achievements now recall a distant past. The network made the first mobile phone call in the UK on January 1, 1985. The company then led the rollout of SMS technology and quickly expanded globally.
The stock peaked during the dotcom boom, giving it a market cap of £214 billion in March 2000. Today, they are languishing near their 20-year low, a 20% drop even since Read took over as CEO in October 2018.
Vodafone has cut spending over the past decade and is now sandwiched between former state monopolies such as 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, is making returns on capital, while Vodafone may not be, according to regulator Ofcom.
Against that backdrop, activist investors and hedge funds are now stirring, with some suggesting the company could find better leadership.
The only regret Read will admit is that he hasn’t moved faster to standardize technology. He has not regretted speeches since November in which he outlined ambitions to make deals in the UK, Italy, Spain and Portugal. That surprised even company insiders, who feared their CEO would weaken Vodafone’s bargaining power, according to a person familiar with the discussions.
Read’s speech raised expectations for operational mergers with rivals that could boost returns in Europe’s saturated and heavily regulated mobile telecom industry. Seven months later, 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 criticizing management’s missed opportunities. Jupiter Corporate Bond Fund also called for faster deals. Cevian Capital AB, Europe’s largest activist fund, has built up an undisclosed stake in Vodafone and is keen to deal with deals and less centralization at the company, according to people familiar with the discussions. All three investors declined to comment.
Reading remains unashamed. “My vision is much more about: do you feel you have a clear idea of where you are going?” he said. “Sometimes with media you get a few hedge funds with very small positions that are very noisy because they are event-driven,” he added. “So it’s in their best interest to stoke the media.”
He clarified that he wasn’t talking about Cevian: “To be honest, I haven’t seen them quote anything yet.”
On the hunt for deals
Investors hope regulators’ prudence – which blocked deals such as Three’s bid for O2 in the UK in 2016 – is now a thing of the past. The question is why Vodafone hasn’t closed any deals yet.
In February, it negotiated an agreement between Vodafone Espana and private equity firm Masmovil, according to two people familiar with the matter – only to find Masmovil and Orange SA announced a merger a few days later, leaving Read on the sidelines. stand. Vodafone and Masmovil declined to comment and an Orange representative did not respond to requests for comment.
Read also rejected a February offer of €11.3 billion from Iliad and Apax Partners for Vodafone Italia, saying it was not in the best interests of shareholders. Talks with CK Hutchison Holdings Ltd about a deal with Three UK have not yet yielded results. UK landline provider TalkTalk Telecom Group Ltd is another option, but during a recent earnings call, Read suggested a UK mobile deal was a higher priority.
Read says top investors, such as Emirates Telecommunications Group Co. PJSC, now known as e&, have confidence. Run by former colleague Hatem Dowidar, e& bought 9.8% of Vodafone’s shares in May and offered a full endorsement. Abdrn plc, the company’s 8th largest holder at 1.7%, is also behind Read. “We support Nick Read’s strategy and give him time to execute it,” said Andrew Millington, head of UK equities.
Read is also working on other options. Vodafone’s presentation of its annual results earlier this month buried a new plan to build out the company’s fast-growing internet-of-things business, which now generates €900 million in revenue. The company also owns Africa’s massive mobile money service, M-Pesa, and has made heavy investments in 5G networks, which could support smart cities and factories.
Read has other complaints to ward off. Centralization – of decision-making and technology – has made leaders outside Vodafone’s UK headquarters less autonomous and accountable, said three people familiar with the company. That could make it harder for outsiders to break up the group, one suggested. Three years after a 18.4 billion euro deal, Vodafone Deutschland – which makes as much profit as the rest of Read’s European units combined – needs technological upgrades. But again, there is no regret.
“A very small minority of certain people have tried to argue that our model is complex,” said Read, who said Vodafone’s 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. Shares plummeted a year ago after Read announced unexpected network investments. The company also had to overhaul its governance after Olaf Swantee, the former CEO of EE, held out for just two months.
A number of people familiar with Read’s management style described him as “nice” and called him a good listener and a good leader. However, three people pointed the finger at his top team. They wondered if Read surrounded himself with the strongest talent.
Read said his executive committee is “excellent”, although he also said “some are being asked to leave” across the company. “We have a performance culture. So I’m nice – up to a point.”