Vodafone Group PLC's (LSE:VOD) new 9.8% shareholder says it is not looking to exert any control or influence, but JP Morgan said it does not seem likely this will remain the case for long.
The US$4.4bn arrival of the Emirates Telecoms Group, known as e&, may have been “a surprising turn of events”, JPM analysts said in a note on Monday, but at face value “seems nothing more than an opportunistic move from a company with a net cash position, and a clearly stated M&A driven agenda”.
Having begun as the UAE’s first ever telco operator and since expanded to 160mln customers across 16 markets across the Middle East, Asia and Africa, e& said in a statement that it considers Vodafone attractively valued, is supportive of the existing management team and strategy, and is not looking to exert any control or influence.
But JP Morgan said “one cannot completely rule out the possibility of Etisalat becoming more interventionist over time.”
Indeed, the analysts said, “we struggle to rationalize the strategic merit in them being a purely passive minority investor”.
With a €1bn net cash position before it shelled out on the Vodafone stake, generating €2.4bn of cash flow a year and with a market value of €72bn that it twice that of its Footsie-listed peer, Etisalat has the firepower to bump it up in the future, “should it so desire”, the analysts noted.
This comment was made in the context that Vodafone “has long been criticized for capex warnings, operational disappointment, excess complexity, and a poor M&A track record – making it a prime target for activism”.
Indeed Swedish activist Cevian also recently acquired a large stake in Vodafone and joined the several existing shareholders that have been quoted in the press demanding change and all in all, Vodafone boss Nick Read is “in a tight spot” as he reports numbers and issues new guidance on Tuesday.