Vodafone’s latest strategic move to sell its Spanish business to London-based Zegona has failed to impress investors and analysts say the company will need to do more to budge the stubborn share price.
The €5bn (£4.4bn) deal, confirmed on Tuesday, will see Vodafone pocket £3.6bn in cash, along with approximately £750m worth of preferential shares.
However, the market response was underwhelming, with Vodafone shares slipping by nearly 1.8 per cent at the opening bell and struggling to rally throughout the day. With a decline of over 25 per cent in the past year, the stock hovered around 1.2 per cent in the afternoon.
“While the pragmatism of the move will be applauded, the valuation may be viewed as disappointing by some,” said Karen Egan, senior telecoms analyst and head of mobile at Enders Analysis, in a briefing report on Tuesday.
The sale of its Spanish business, while lifting an ongoing financial burden — Vodafone’s Spanish arm lost more than £300m in the last financial year — poses just one of several challenges for Vodafone such as its dividend policy.
The transaction’s outcome also falls short in comparison to Vodafone’s history in the uncertain and “intensively competitive” Spanish market. In 2014, the telecom giant acquired Ono for €7.2bn, making the current deal a substantial €2bn loss, explained Egan.
In recent years, Vodafone has grappled with declining performance, leading to asset sales and mergers in order to push the business to growth.
The latest move involves pivoting toward Vodafone’s most lucrative markets: Germany, Italy and the UK, with Spain being left behind.
“Vodafone has struggled to make strides in the Spanish market where CEO Margherita Della Valle had announced a strategic review earlier this year,” explained Victoria Scholar, head of investment at Interactive Investor.
“Della Valle, who took to the helm in April has been trying to start a new chapter for Vodafone after a period mired by its lacklustre performance.”
But, this strategic shift failed to inspire investors as Russ Mould, investment director at AJ Bell pointed out.
He said: “The market has shrugged off the Spanish news, with the shares dipping on the announcement. This suggests the telecoms group needs to be more imaginative in reviving its fortunes; otherwise, its shares might continue to drift.”
Vodafone is currently engaged in discussions with the UK’s competition watchdog regarding its proposed merger with Three UK.
The telecom giant’s UK chief has touted the deal as beneficial for consumers and the UK’s digital infrastructure, but critics have voiced concerns about national security and potential competition issues.