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$4.4bn sounds a lot but e& has made the right call on Vodafone

Etisalat launched its e& identity in February Creative Commons
Etisalat launched its e& identity in February
  • Together the companies already have an eye on 6G
  • UAE telco may yet increase its stake
  • e& aiming to buy out Saudi Arabian unit for $2.1bn

Vodafone and e&, formerly known as Etisalat, will look to launch new products globally while working together to make greater efficiencies following the UAE telco’s deal to buy a $4.4 billion stake.

Following the announcement that the UAE’s biggest telecoms operator has acquired a 9.8 percent stake in British mobile operator Vodafone Group, AGBI spoke to industry insiders to discuss e&’s strategic objectives in making the acquisition.  

The state-controlled UAE group has said the investment allowed it to “gain significant exposure to a world leader in connectivity and digital services”.

e&’s telecoms business currently spans 16 countries, led by its headquarters in the UAE, as well as Saudi Arabia, Pakistan and Egypt, but in March this year it announced a strategic restructure aimed at expanding international growth and broadening its offering into financial technology and other services. 

Its digital entertainment and fintech services have been segmented into “e& life”, cyber security and artificial intelligence solutions into “e& enterprise”, while “e& capital” will focus on mergers and acquisitions and growing its international presence.

Therefore, its acquisition of a stake in Vodafone neatly complements this strategy, experts said. 

“There will now be opportunities for both Etisalat and Vodafone to work more closely to bring greater efficiencies and launch new products globally,” says Paolo Pescatore, an analyst at PP Foresight. “This will include but not be limited to current and future next generation networks, including 6G, as well as an ever-increasing focus on software thanks to digital transformation. Both companies have aspirations to compete more effectively in the lucrative enterprise market.” 

e& has previously been vocal about how it plans to target yet-to-be-named countries and companies in Asia and Europe over the next 18 months to accelerate its growth. 

“Vodafone has an extensive presence across Europe and this remains an untapped opportunity for e&,” adds Pescatore. “While the move is a bolt out of the blue it underlines the statement of intent. Having access to a lucrative region which is heavily focused on fibre and 5G will help e& take key lessons into its other markets as well as the hope of seeing significant returns.” 

However, e&’s ambitions for future European growth may not sit comfortably alongside its fellow shareholders from whom Vodafone has come under pressure after the group struggled in its mature European markets where competition and regulation have pushed prices lower. 

Pescatore believes that further consolidation is “clearly on the cards” for Vodafone in key European markets where rivalry remains intense and scale is paramount.

This potential divergence in future stakeholder ambitions has led James Ratzer, European team head and telecoms analyst at New Street Research, to suggest that e& may look to increase its stake over time. 

In an analyst note published on Saturday, Ratzer said that would likely require talks with the UK government to set out the company’s thinking and court political approval before increasing it further.

“This move will certainly trigger a lot of future discussion -– certainly only two days before Vodafone’s full-year results,” he said. 

“e& has been keen to buy controlling stakes where they can. I’d be surprised if it is content to remain as a minority stakeholder as that position isn’t consistent with their past corporate strategy.

“e& are probably trying to agitate for change and I’d expect them to want to break out their emerging market business or maybe pursue something more extreme such as a full takeover. The fact that they’re not asking for a board seat suggests they want to stay on the outskirts and not necessarily be too friendly in their approach.” 

Indeed, after prioritising organic growth in recent years, e& is now noticeably stepping up its deal activity.

Aside from its Vodafone acquisition, e& is also seeking to buy out the rest of its Saudi Arabian unit in a deal valued at $2.1bn. 

In August last year Etisalat, as it was known then, acquired an additional stake in Morocco’s Maroc Telecom Group, increasing its effective ownership to 53 percent.

In April e& reported a 3.6 percent rise in first-quarter net profit which was supported by the growth in the number of subscribers. Its total subscribers reached 159 million at the end of first quarter – an increase of 2 percent over the same period last year.

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