Vodafone knows a thing or two about mergers. The Paddington-based telco still holds the crown for the world’s biggest-ever M&A transaction, acquiring German rival Mannesman in 1999 in a $183 billion deal (double that in today’s money). Elon Musk’s $44 billion Twitter takeover, or Microsoft’s $69 billion purchase of Activision, concluded last year, look puny by comparison.
Back then, Vodafone was one of the most exciting, most valuable companies in the world — not far off the market cap of Microsoft. It was viewed as a tech stock with a big growth story to tell.
Now? Not so much. It’s a smaller, leaner organisation, and shareholders see it as a utility stock — a company with ageing infrastructure, wrestling with the high costs of maintenance and upgrades.
And that forms the rationale behind its latest deal, the proposed £15 billion merger with Three, which the competition watchdog, the CMA, today said would go through its more thorough ‘phase 2’ investigation.
Voda says it can’t afford network improvements without more market share. There are four network operators today — three is the magic number, says CEO Margarita Della Valle. But the CMA fears higher prices and worse customer service could result.
Back in 2015, Three tried to acquire O2 on similar grounds — but that was blocked by the EU Commission. The CMA could do the same now. How would Voda respond?
Della Valle, a company veteran of 30 years, has already recast the firm in her image since taking over last year, dumping chunks of business that weren’t making money. Last week she sold Vodafone Italy to Swisscom for 8 billion euros — the market where the Italian began her career, a sign she's prepared to pull Voda out of the UK if forced.
Voda is destined to be emblematic of the UK stock market’s dealmaking chutzpah. If the firm behind the biggest merger failed to get a deal through at home it will ring alarm bells over what has changed and why for a once buccaneering giant and blockbuster City M&A.
