5G and Beyond

Liberty Global snares 'opportunistic' stake in Vodafone

Liberty Global CEO Mike Fries calls the company's 4.92% stake in Vodafone "opportunistic." Some analysts who cover the company have a different thought – one of "confusion."

Denver-based Liberty Global revealed the move Monday, announcing it has acquired 1.33 million shares of Vodafone, and that the transaction required funding from Liberty Global of roughly 225 million pounds sterling (US$273.08 million). Liberty Global noted that it does not intend to seek a board spot at Vodafone.

"We believe, like many others, that Vodafone's current share price does not reflect the underlying long-term value of their operating businesses, or their announced consolidation and infrastructure opportunities," Liberty Global CEO Mike Fries said in a statement. "We continue to remain disciplined about our capital and fully expect that the equity used to fund this investment will be replenished with the sale of certain non-core assets over time."

Fries put it more bluntly to the Financial Times: "The stock's cheap – it's an opportunistic and financial investment."

Liberty Global's move follows one last year by United Arab Emirates-based e& (formerly Emirates Telecommunications Group) for a 9.8% stake in Vodafone, and another, smaller one by French telecoms billionaire Xavier Niel.

Disclosure of the Liberty Global stake arrives after former CEO Nick Read left the company at the end of 2022, departing at a time in which Vodafone is trying to manage shareholders and a flagging stock.

Stake surprises some analysts

Some industry watchers say Liberty Global might get a decent return on the stake, but view it as an additional distraction to Liberty Global's "overall investment case."

"Our initial thought is one of confusion, and while we are bullish on Vodafone and would like to think Liberty Global can make a decent return on their investment, we would initially see this as an added distraction on the overall investment case for Liberty Global," the analysts at New Street Research explained in a note about the transaction.

Liberty Global, they added, has about $3 billion of liquidity at its "TopCo," and is funding the stake with 80% debt along with the aforementioned £225 million of net equity.

"[A]nd we have consistently championing for clearer guidance on how this capital will be used, as it is currently just earning a cash return," the analysts explained. "However, buying a minority stake with no Board representation in a quoted company was not the move that we were expecting."

More than an opportunistic move?

The investment in Vodafone could likewise provide more visibility into the value of Liberty Global's Ventures arm, which has invested in more than 75 companies across content, technology and infrastructure, including ITV, Televisa Univision, AtlasEdge, Plume and the Formula E racing series.

But, the analysts warn, "it could also turn out to be a bad investment, especially if a new CEO arrives at Vodafone and decides to commit to a major FTTH [fiber-to-the-home] buildout program in Germany and cuts the dividend."

At this point, the analysts' bottom line view matches with Fries' – that Liberty Global's stake is "an opportunistic move with limited strategic implications," but could cause some to wonder if there's something bigger going on.

New Street Research's analysts speculated on some possible angles, wondering if the stake might accelerate a sale of Dutch joint venture VodafoneZiggo to Liberty Global, or lead to a possible combination of their respective assets in Ireland. They also wonder if Liberty Global's move might likewise put pressure on Vodafone to become a wholesale partner for Virgin Media O2, the Telefónica-Liberty Global joint venture in the UK.

"We wouldn't believe any of these are linked to this investment, but there are certainly still areas where Vodafone and Liberty could do business together, and if Liberty Global's stake in Vodafone were to increase further and they do push for a Board seat in future, then these options could become more relevant in future," the analysts added.

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— Jeff Baumgartner, Senior Editor, Light Reading

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