Global - Vodafone restructure - An End to the Mobile Heyday

Telecom Investment Research Note

Synopsis

The restructure of the Vodafone Group may involve the company’s disposal of non-core assets in a number of markets. Some businesses have already been separated from the Group’s former regional units, while the reorganisation created new Group Commercial and Group Technology divisions, as well as split the operating companies into two regions: Europe, taking in Turkey, and Africa, the Middle East and Asia Pacific. Areas now classified as investments, including Verizon Wireless, Polkomtel and Bharti Airtel in India, are no longer be under a regional structure but are managed separately. These moves are intended to tighten managerial control, simplify its organisation, and improve shareholder return following several months of investor pressure for the company to divest minority stakes and increase shareholder dividend.

An obvious candidate for divestiture is the US operation Verizon Wireless, which has not produced a dividend since 2005. In addition, a precedent was recently established by the company’s sale of its 3.2% stake in China Mobile for £4.3 billion. Vodafone almost doubled its original investment, made in 2000, and will return about 70% of the sale proceeds to shareholders while using the remaining 30% to reduce the Group’s net debt of more than £33.3 billion. Yet the sale, together with the likely sale of its 4.4% interest in Bharti Airtel, may portend an incautious shift by which the Group no longer aspires to be global player at just a period when global scale has become increasingly paramount.