Vodafone's CEO Arun Sarin is coming under increasing pressure to unite the company and appease investors

March 13, 2006

5 Min Read
Pressure Mounts on Vodafone CEO

If Vodafone Group plc (NYSE: VOD) CEO Arun Sarin is a fan of the U.K. football (soccer) scene, he'll be watching his back today.

Why? Because this morning he received what is perceived by British football coaches to be the kiss of death -- a vote of confidence from his chairman.

The public message of support from Vodafone chairman Lord MacLaurin of Knebworth (honestly) follows months of mounting pressure on the CEO from investors and analysts over the company's long-term strategy, especially regarding Vodafone's extensive international holdings and speculation about internal wrangling. (See Vodafone Mulls Japanese Sale, Vodafone Rings Warning Bell, and Vodafone Sticks With Verizon.)

In his short statement, Lord MacLaurin said: "I want to make it clear that I and the Board are totally supportive of our Chief Executive, Arun Sarin, as he takes the Company forward in changing and challenging times. Any other suggestion is completely untrue."

In the murky world of soccer management that would translate as "start clearing your desk, sonny."

Sarin, though, isn't packing his kit bag. In fact, he appears to be on the offensive. Last week he saw off chief marketing officer Peter Bamford, regarded as one of the obstructive Old Guard. (See Vodafone's Bamford To Leave.)

And now another perceived opponent, Sir Christopher Gent, Sarin's predecessor as CEO, has quit his role as honorary lifetime president, a non-executive position. Coincidentally, Lord MacLaurin felt it necessary to publicly protect Sir Christopher back in 2002 when he was under fire in the media. (See Sticks & Stones May Break My Bones….)

According to media speculation, Gent has been unhappy at Sarin's handling of Vodafone's international strategy and the potential dismantling of the empire he built up, and has been campaigning against the current CEO and his supporters. But Sir Christopher, in his resignation statement, refutes the allegations outright, dismissing suggestions he has been fueling internal unrest.

"It has been alleged that I have used the position [as Life President] to interfere with the company and obstruct current management. These allegations are without foundation… If there is a 'whispering campaign' or 'conspiracy,' which I very much doubt, then I am not party to it."

He adds: "When I was an executive at Vodafone, relationships within the company and at Board level were characterized by openness and trust. We were mercifully free of company politics and blame culture. I do not wish to be subject to a disinformation campaign intended to manipulate the press. Furthermore I do not want any misunderstanding of the role of Life President to be used in a way that might detract from Vodafone’s future prospects."

He ends, though, with a small kick to the nether regions of the current management. "Nothing would give me greater pleasure than to see Vodafone recover from its present difficulties."

News of Gent's decision, viewed as one step towards greater management unification, helped Vodafone's share price rise by 4.75 pence, nearly 4 percent, to 129.5 pence on the London Stock Exchange , valuing the operator at £78.2 billion (US$135 billion).

Robin Hearn, an analyst at Ovum Ltd. , reckons Sarin inherited an almost impossible task from Gent. "The job of bringing all those disparate elements of the Vodafone empire together in an increasingly competitive and challenging climate has been much more difficult than any of the Vodafone management, now or then, would have ever thought," writes Hearn in a research note.

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"His job has been made that bit more difficult over the past couple of weeks by perpetual reports of boardroom struggle and strife," adds Hearn. "Some are saying that Sarin is leading a purge of the old guard, and of course the departure of Gent, the spiritual leader of the group, could be seen as the ultimate prize."

But Hearn says other impending changes could be just as important. Lord MacLaurin is set to retire in July and is being replaced as chairman by current board member Sir John Bond, while deputy CEO Sir Julian Horn-Smith, who has been responsible for Vodafone's international strategy, is also stepping down at the company's annual general meeting in July.

"We do not yet know what to expect of Lord MacLaurin's replacement, John Bond, and we certainly do not know how his relationship with Arun Sarin will develop over its first few months. This has some way to go yet, so take your seats," says Hearn.

A more immediate challenge for Sarin is the nagging matter of Vodafone's U.S. presence. Investors are still keen to know if Sarin will hold on to the 45 percent stake in CDMA operator Verizon Wireless , an anomaly in the holdings of the world's biggest GSM operator. The CEO said recently that the stake was increasingly valuable, and that there were no plans to sell just yet.

But majority stakeholder Verizon Communications Inc. (NYSE: VZ) wants to buy out its partner, and media speculation is rife that the U.S. carrier is keen to identify Vodafone's price. Selling the stake, though, would leave Vodafone without a position in one of the world's most important and lucrative markets, with little room for an acquisition in the GSM market following recent carrier consolidation. (See Cingular's Converged Future.)

Further speculation surrounds the future of Vodafone's Japanese business. Sarin's team is already in talks with SoftBank Corp. about a potential sale, but it seems the unit is attracting attention from private equity groups that are awash with cash, and a bidding war may ensue. (See In Japan, Vodafone Bows Out.)

The current rumor mill has even gone as far as suggesting that Vodafone itself might be in line for a bid worth up to £100 billion ($173 billion) by a consortium of private equity firms. An outlandish suggestion, perhaps, but one that would surely put Sir Christopher's eyeballs in a spin. If he has been worried about Sarin's intentions for Vodafone's international footprint, imagine what the potential of a global asset stripping exercise would do for his blood pressure.

— Ray Le Maistre, International News Editor, Light Reading

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