Vodafone’s CEO, Margherita Della Valle, has achieved her first victory with a proposed merger agreement in the UK, according to a Reuters news report.
However, the arduous journey leading up to this point and the challenges that lie ahead highlight the magnitude of the task she faces in revitalizing the telecoms group.
Margherita Della Valle assumed her position as chief executive in late April with the mandate of restructuring the business in crucial European markets and reversing the declining performance that has caused its stock price to reach its lowest point in 25 years.
Her initial focus has been on the UK, as announced on Wednesday. Vodafone has reached a merger agreement worth £15 billion ($19 billion) with CK Hutchison to establish a new market leader in the country.
The discussions between the two parties were first disclosed in October 2022. They aim to finalize the deal by the end of 2024, subject to obtaining regulatory and political approvals. This means they must wait another 18 months before reaping the benefits of synergies and improved performance.
“This transaction is a game changer for Vodafone in our domestic market,” said Della Valle, a seasoned company veteran of 29 years. According to the terms, Vodafone may eventually acquire the Hong Kong-based conglomerate, provided both parties agree.
The announcement brings some relief to a management team that has faced difficulties in recent months, including weak trading in Germany, Spain, and Italy, as well as a lack of progress on the deal front, which led to the departure of former CEO Nick Read last year.
One significant institutional investor, speaking anonymously to Reuters, acknowledged the changes Della Valle was implementing but expressed frustration over the prolonged duration of the British deal. They emphasized the need for more decisive action in the near future.
Ahead of the announcement, the investor stated that the upcoming year would be “crucial for the CEO’s career.”
Many investors expect Vodafone to pursue similar deals in markets such as Italy and Spain, where intense competition has eroded returns while telecom groups invest heavily in increasingly faster networks.
While these endeavors may require time, Kester Mann, a director at CCS Insight, believes that the British merger announcement will provide a boost for Della Valle.
He remarked, “She has demonstrated her determination to instigate changes at Vodafone, aiming to revive the company’s performance. Obtaining approval for a partnership with Hutchison’s Three would greatly enhance her early tenure.”
“There are potential pros and cons for consumers with any merger like this. At Uswitch, we’re all about providing customers with greater choice, however with consolidation in the UK market – from four Mobile Network Operators (MNOs) down to three – there’s always the risk of reduced competition and subsequent increased prices,” Ernest Doku, telecoms expert at Uswitch.com, said.
“At a time when millions across the UK are facing the highest mid-contract prices we’ve ever seen, consumers need assurances that this merger will not result in even higher household bills. The pledge of a significant investment in 5G over the next decade is some solace that they will be building for a better future of connectivity, so long as it is adhered to. What we don’t want to see is customers footing the bill with further increases to pricing.”
Paolo Pescatore, analyst at PP Foresight, believes that Ofcom recognises the challenges of the UK mobile market and the need for scale. “Convincing the CMA will be the real test. Current investment levels are not sustainable in the longer term.”
“The UK telco market is now polarised with two vertically integrated telcos at one end and two subscale mobile operators at the other. Concessions on spectrum will have to be made and the entity will have to provide solutions on areas like network sharing, rather than create another problem,” Paolo Pescatore said in a statement.