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Vodafone Is an MBA Case Study of Messed-Up M&A
Here are key takeaways if you treat miscalculations as object lessons on what to avoid in the future.
Chris Hughes
1:18 PM IST, 22 Nov 2022
4:41 PM IST, 22 Nov 2022
A pedestrian checks his smartphone as he passes the entrance to a Vodafone Group Plc retail store in London, U.K., on Friday, July 22, 2016. Vodafone reported first-quarter service revenue that beat analysts estimates amid gradual improvements in its European mobile-phone businesses and growth in developing markets.
A pedestrian checks his smartphone as he passes the entrance to a Vodafone Group Plc retail store in London, U.K., on Friday, July 22, 2016. Vodafone reported first-quarter service revenue that beat analysts estimates amid gradual improvements in its European mobile-phone businesses and growth in developing markets.
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(Bloomberg Opinion) -- There’s hidden value in Vodafone Group Plc, the sprawling telecoms company whose market capitalization has shed more than $50 billion in nearly five years. It offers business students a lesson in the good, the bad and ugly of mergers and acquisitions. The only thing missing is the ultimate deal: a break-up bid.
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Things aren’t going well. The shares recently slid beneath the psychological 100 pence level. The competition has been whipping Vodafone in Germany, its main market. Management is struggling to convince investors that high debt from dealmaking will come under control. Activist Cevian Capital AB gave up on the stock earlier this year, but telecoms billionaire Xavier Niel has taken its place as a potential agitator.
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Rewind to 2013 and it’s hard to believe Vodafone could have got into such a pickle. Then-Chief Executive Officer Vittorio Colao agreed to an exit from its joint venture with Verizon Communications Inc. for $130 billion. Most of the payment received — mainly a mix of cash and Verizon shares — was funneled to shareholders. That was a great deal, making a hiatus in years of empire building. Sadly, the sequels in this M&A saga have been a letdown.
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Vodafone added cable infrastructure to its portfolio pursuing a so-called convergence strategy to sell phone, internet and pay-television services. Having offered $11 billion to take control of Kabel Deutschland Holding AG in Germany, it then gobbled up Spain’s Grupo Corporativo ONO SA for $10 billion. The Spanish market later became viciously competitive.
In 2018 came the $22 billion acquisition of assets from rival Liberty Global Plc. This filled gaps in Vodafone’s German coverage. Less than a week after the announcement, Nick Read, then chief financial officer, was announced as Colao’s successor and given the mammoth integration job. True, Colao had been boss nearly 10 years, but the succession was hardly ideal. Vodafone shares have badly trailed European peers ever since.
To be fair, the idea of becoming a bundled telecoms provider made sens
Out we go yet again, what a joke
Tipped to join Abrdn in the FTSE 100 is Weir Group, a Glasgow-based engineering firm, while Harbour Energy and Dechra Pharmaceuticals are set to be relegated to the FTSE 250. Betting company 888 Holdings could be demoted from the FTSE 250 to the FTSE Small Cap, while Digital 9 Infrastructure, an investment trust launched in March 2021, could very well take its place.
We are so ****ed
The North Sea’s biggest producer has expressed its frustration over plans to phase out the windfall tax if oil commodity drop to a normal level.
Operator Harbour Energy says it is “deeply disappointed” that the energy profits levy now won’t expire if oil drops to around $70 a barrel.
Jeremy Hunt also confirmed during his autumn budget that the policy will run until 2028, rather than 2025 as originally planned.
As well as pushing back the closing date, the chancellor increased the tax on the profits of oil and gas companies by 10% to 35% to plug the government’s fiscal black hole.
It is feared the move could lead to a more rapid decline in UK North Sea production and accelerate decommissioning of assets.
Responding to the news, a spokesperson for Harbour said: “We are reviewing the impact on our business of yet another change in the tax regime for UK oil and gas companies.
“The EPL, as currently designed, disproportionately impacts independent UK oil and gas companies and does not target genuine windfall profits.
“We are also deeply disappointed to learn today that the government has not only increased and extended the EPL, but has also abandoned its policy to phase it out if commodity prices return to normal levels.
“We will seek to engage with Ministers and officials as a matter of priority.”
The decision to up the windfall tax follows oil major’s announcing billions of pounds of profits in their third quarter results.
They are still benefiting from investment relief included as part of the original policy though.
A Shell spokesperson said: “We recognise the burden that increased prices have across society, in particular on vulnerable consumers and communities. It is for governments to decide when and how they intervene to help those who need it most.
“As well as raising revenues to support people, taxes should be designed to provide incentives for investment to address the underlying supply problems that are causing high prices now, and to drive the vital, longer term transition to a low-carbon energy system.
“To deliver the very significant investment needed, which for Shell UK will be up to £25 billion in the next 10 years, the energy sector needs to have confidence that there will now be a stable investment climate following a period of considerable uncertainty.”
North Sea oil and gas production will be hit by hiked windfall tax, says Investec
The UK jeopardises future North Sea oil and gas production and the country’s reliance on carbon intensive overseas vendors if the windfall tax is toughened up tomorrow, argued an investment analyst group.
Investec predicts that expanding and raising the Energy Profits Levy will have damaging “medium term consequences” such as a more rapid decline in North Sea production, accelerated decommissioning in existing projects and a greater dependence on higher emission imports.
It could also have”implications for the wider supply chain” with around 120,000 jobs linked to the North Sea across multiple sectors of the economy including transport, infrastructure and manufacturing.
The investment group expects a 25-75 per cent drop in the value of exploration projects over the duration of the tax, and has reduced its recommendation on Harbour, the largest UK North Sea producer.
It has now dropped its recommendation from buy to hold, reflecting higher uncertainty around the development of the continental shelf.
This follows equally gloomy forecasting from investment group Stifel, which warned last week that the UK risks no new investment in the North Sea oil and gas sector if taxes are hiked.
10.30am: Harbour Energy tops FTSE 100 fallers on windfall tax worries
Shares in North Sea oil and gas producers dropped this morning, amid reports that chancellor Jeremy Hunt is considering increasing the emergency levy from 25% to as much as 35% in his autumn statement on Thursday.
Harbour Energy is the top faller on the FTSE 100, down 7%, while shares in Enquest have dropped 9%.