After it was revealed that Cevian Capital is a new name on the Vodafone Group PLC (LSE:VOD) share register, should board members at the FTSE 100 group be quivering and should investors be as pleased as the share reaction suggested?
So far, the Swedish hedge fund has neither declared the size of its stake – meaning it is likely to be below 3% – and has refused to comment publicly on what its intentions are.
READ: Vodafone shares rise as activist investor stake revealed
With Cevian’s founder Christer Gardell having earned himself the nickname of ‘the Butcher’, the telecoms group’s boss, Nick Read, may fear calls for his head.
Previous targets for Europe's largest activist fund, which is based in Stockholm and has a London office in the West End, include Aviva, Pearson, RSA Insurance and Vesuvius in London, with continental battles with Ericsson and Thyssenkrupp.
Cevian has been in talks with Vodafone management to improve performance in recent months, said Bloomberg, which first reported the stake, suggesting the stake started to be built before the company’s November half-year results.
Several options to boost value were suggested in the report, including consolidation in key markets, selling some operations or undertaking share buybacks.
The Financial Times said Cevian is not happy with the composition of the Vodafone board, believing there is not enough telecoms industry expertise.
Vodafone are also being pushed to “be more aggressive in driving consolidation” in mobile telecoms markets that are “weaker and more unwieldy” such as the UK, Italy and Spain, according to the reports.
Analysts said these reports made sense, with Jefferies seeing several positives from the stake, including that it “suggests that this well-connected investor believes executing such transactions is feasible”.
The presence and influence of an activist interest is also seen as a positive as it escalates pressure on management to deliver their promised consolidation and tower deals.
Coming after VOD's reported talks earlier in January between Vodafone and Iliad, with reports late last year that talks about an Italian merger had been held with Asian conglomerate Hutchison, owner of Three UK, “signals confidence”, said Jefferies.
The analysts calculated there are a provisional €8bn of merger benefits across Italy, the UK and Spain from cutting costs, capex and boosting growth.
With VOD signalling its intent to participate EU tower dealmaking in November, maintaining co-control with a like-minded industrial player, Jefferies said that moving from its current 82% stake in Vantage Towers to a 25% economic interest in a merged business could unlock another €5bn-€6bn of value.
Cevian’s presence also “brings new focus” to operational priorities in Germany and with customer service as well as potentially forcing some “hard decisions” about underperforming assets.
“There is no silver bullet to re-rate VOD, but there are genuine rays of hope,” Jefferies said.
Vodafone shares down almost 52% from the start of 2018 to the beginning of 2022, with no reward for the company as European service revenues have returned to growth in recent quarters as pandemic impacts dissipated and operational trends improved.
Victoria Scholar, head of investment at Interactive Investor, said: "Unless drastic action is taken to overhaul Vodafone, the stock looks set to continue to underperform the FTSE 100, at a time when the UK market is looking increasingly compelling from a valuation perspective, having underperformed other global indices since Brexit.”