The big FTSE 100 story this week is Vodafone (LSE:VOD). French billionaire Xavier Niel agreed to buy a 16.2% stake for £4.4bn, making him the company’s largest shareholder.
Earlier this week, the OECD declared three-quarters of London jobs “highly exposed” to AI. So is the idea of humans paying phone bills really an investable one?
Who’s buying?
Niel is Europe’s foremost telecoms disruptor. He founded Iliad, whose Free brand broke the French mobile market in 2012 with €2-a-month contracts.
Importantly, he’s also spent two decades buying and improving telecoms businesses. And he thinks there’s plenty of opportunities ahead with Vodafone.
The FTSE 100 firm’s European costs are still well above his standards, it has infrastructure that can be monetised, and scope for further in-market consolidation. Those are all opportunities.
The strategy is to take “quality assets, strong brands, leadership positions and a diversified geographic footprint” and contribute “deep sector expertise and operational know-how”. And that could work.
The question, however, is whether other investors should be interested. As someone who isn’t a serial telecoms operator, is Niel’s involvement a reason for me to join the party?
Should I join in?
Warren Buffett warns that the five most dangerous words in business are ‘everybody else is doing it’. And copying a billionaire is the investing version of this.
When Niel invests, he gets influence, board access, and 25 years of running networks. The rest of us get shares in a capital-intensive industry where returns have been poor for years.
There are a couple more things worth noting. One is that e& – the seller of the stake Niel is buying – is selling at 112.5p, which is barely higher than what it paid in 2022.
Another is that Niel is prohibited from launching a full takeover bid for at least six months. So the chances of a full acquisition bid are very low – not that this is enough of a reason to buy anyway.
In other words, I don’t see the latest news as a reason to consider buying the stock. But there are other reasons for optimism that are worth paying attention to.
The bull case
e& didn’t get a good return on its Vodafone investment. But the business has been going through something of a transformation recently.
It’s sold off its Spanish and Italian divisions, resulting in more cash and greater simplicity. And its competitive position has also strengthened.
The 2025 merger between Three and Vodafone took the UK from four mobile networks to three. The result was less competition and an anticipated £700m in annual savings by 2030.
Those are both genuine improvements that address some of the company’s biggest issues. And Niel thinks the business is ready for growth as a result.
There’s a real sense in which he’s the expert and I think the stock looks more attractive now than it has done in some time. But there’s more to an investment than that.
My verdict
Niel’s investment in Vodafone might work. At the very least, the man’s record demands respect.
Investors should be wary, however, about chasing a big name into a position. What if he subsequently changes his mind – for whatever reason?
For those of us without his advantages, though, I think there are more obvious opportunities elsewhere. Even among turnarounds, I’m focusing on names that I see as more promising.
Should you invest £5,000 in Vodafone Group Public right now?
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Stephen Wright does not own shares in any of the companies mentioned.
