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Vodafone: Time to Scold the Mayo?

A shareholder group led by investment firm Efficient Capital Structures has sent a letter to Vodafone Group plc (NYSE: VOD) asking the U.K.-based wireless company to sell its 45 percent stake in Verizon Wireless . The proposed spin-off would return approximately $79 billion to Vodafone shareholders.

Vodafone must consider motions like this from any entity representing either 5 percent of share capital or 100 shareholders. ECS falls into the 100 shareholder category but only holds about 200,000 shares.

ECS is backed by former Marconi Corp. plc head John Mayo. Mayo, for those who just joined us, played an integral role in Marconi, turning a £4 billion surplus into a £5 billion loss. (See 2001 Top Ten: Fat Cats.)

The idea of Vodafone selling its stake in the U.S.'s largest wireless carrier is not new. A year ago it was reported that an agreement had been reached with Verizon Wireless's parent company Verizon Communications Inc. (NYSE: VZ) in a deal worth $56 billion. (See Verizon/Vodafone Deal Reported Near.)

But later that summer, Verizon confirmed during an earnings call that Vodafone was happy with its investment in the company and would not be selling. (See Vodafone Hangs On to Verizon Stake.)

The wireless group is one of the most valuable assets in Verizon's lineup which is why the company has tried to obtain 100 percent ownership in the past. On the flip side, that is precisely why Vodafone has been so unwilling to let go of it as it has been a revenue machine for the company. In the most recent financial quarter, Verizon Wireless revenues shot up 17 percent to $10.3 billion. (See FiOS, Wireless Help Verizon's Healthy Q1.)

But Vodafone has been under pressure from investors to return capital to shareholders through a sell off of the Verizon unit. However, this is the first official motion by any investor calling for the divestiture.

"We believe that the complexity of a tracker/spin-off of Verizon Wireless coupled with loss of influence offsets any potential benefits to shareholders and a £1 billion deal-size-cap beyond which shareholder approval would be required, is too restrictive," writes Robert Grindle of Dresdner Kleinwort in a research note this morning.

"VZW is likely to become more substantially dividend paying from about two years time we believe, at which point it will in our view be clear that patience was the right strategy here," writes Goldman Sachs & Co. analyst Simon Weeden in a research note. Weeden also notes that he expects the Vodafone board to reject the proposal.

Both Vodafone and Verizon would not offer any comment on this situation, though Verizon's CEO said on CNBC Tuesday that he was happy with Vodafone's role in Verizon Wireless. ECS's motion will be voted on at Vodafone's annual shareholders meeting on July 24.

— Raymond McConville, Reporter, Light Reading

Gabriel Brown 12/5/2012 | 3:07:19 PM
re: Vodafone: Time to Scold the Mayo? Vodafone's share price jumped yesterday, so there's got to be something in these activist calls.

But it would be very sad day if an investment firm run by the same guy who saw Marconi to its grave succeeded in loading this blue chip operator up with debt.

ECS, apparently, only owns 0.0004 percent of Vodafone's equity.

Maybe this will prompt VOD into more acquisitions in high-growth markets.
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