Emirates Telecommunications Group has acquired a 9.8 per cent stake in Vodafone for around $4.4bn as it kick-starts its latest expansion into international markets.
The state-controlled UAE group, formerly known as Etisalat and now rebranded e&, on Saturday said the investment allowed it to “gain significant exposure to a world leader in connectivity and digital services”. e& said the transaction provided a “compelling and attractive valuation”.
The Abu Dhabi-listed group said it planned to be a long-term shareholder in Vodafone and was supportive of Vodafone’s board. There were no plans to make an offer for the British multinational, it added.
“We are looking forward to building a mutually beneficial strategic partnership with Vodafone with the goal of driving value creation for both our businesses, exploring opportunities in the rapidly developing global telecom market and supporting the adoption of next-generation technologies,” Hatem Dowidar, chief executive, said in a statement.
Vodafone acknowledged the investment, saying it looked forward to building a long-term relationship with Etisalat.
Vodafone has been under pressure since it emerged that Cevian Capital, Europe’s largest activist investor, had built an unspecified stake, and had been angling for an overhaul of what its investors believe to be an overly-complex business model.
Investors at Cevian have called for the company to shed poorly performing parts of the business, and make material progress towards mergers or acquisitions in markets that chief executive Nick Read has said he is looking to do deals in, namely the UK, Italy and Spain.
The Financial Times reported earlier this week that Vodafone was in talks to combine its UK operations with its domestic rival Three UK, the mobile operator owned by Hong Kong infrastructure conglomerate CK Hutchison.
Karen Egan, an analyst at Enders Analysis, said e&’s stake amounted to “another shareholder to add to the pressure on Read . . . at a crucial time for him”.
“A company like that doesn’t take a sizeable minority position unless they think they can have a lot of influence and I don’t think that they would buy a company like Vodafone unless they thought that momentum was about to change quite considerably,” she added.
Others saw the share purchase as a positive indicator for the European telecoms group and its management.
“Despite Vodafone’s failed attempts to consolidate in key markets, this is a strong endorsement of its strategy and most significantly the board,” said Paolo Pescatore, an analyst at PP Foresight.
Vodafone will release its full year financial results for 2021 on Tuesday.
According to Bloomberg, citing its own data, e& is now Vodafone’s largest shareholder, ahead of BlackRock, the Vanguard Group and HSBC.
In 2021 e& reported net profit of 9.3bn dirhams ($2.5bn), a 3.2 per cent increase on the year, with its aggregated subscriber based rising 3 per cent to 159mn, including 12.7mn in the UAE.
The UAE, the second-largest Arab economy thanks to large hydrocarbon reserves, is refocusing on a drive to prepare for a post-oil future via domestic diversification and expansion into global markets through national champion companies, such as e&.
The group, which has already established an international footprint across the Middle East, Africa and south Asia, has restructured operations in a bid to diversify further internationally and broaden its offering into financial technology and other services.
The telecoms business spans 16 countries, led by its home base, as well as Saudi Arabia, Pakistan and Egypt. The group split off digital entertainment and fintech services into “e& life”, cyber security and artificial intelligence solutions into “e& enterprise”, while “e& capital” will focus on mergers and acquisitions and growing its international presence.
The group was formed in 1976, five years after the UAE gained its independence, maintaining monopoly status until 2007, when another state-controlled telecoms firm, Du, started operations. Virgin Mobile launched in 2017 in partnership with Du.
It remains the dominant player in the UAE market, which has yet to be opened to full competition and blocks most internet-based phone calls.