Back in January, Vodafone’s CEO, Arun Sarin came under pressure from a number of shareholders over Vodafone’s decision to retain its minority stake in the second largest US mobile operator.
Standard Life Investments, Vodafone’s seventh largest investor, had openly criticized Sarin’s global strategy and said that Sarin should sell Vodafone’s 45% stake in Verizon Wireless to its parent, Verizon Communications Inc, for at least 25bn pounds ($44.64bn).
It said the move would give Vodafone a massive earnings uplift that would allow it to concentrate on its European and Asian businesses. In essence, Vodafone shareholders are frustrated in their efforts to get a large return on their investments, especially given Vodafone’s recent poor stock market performance (its shares have lost 14% of their value since the start of 2005).
Then days later, Verizon Communication’s chief executive Ivan Seidenberg cranked up the pressure on Sarin when he made clear his desire to acquire the minority stake.
However, Sarin responded by sticking to his guns. At the 3GSM mobile convention in Barcelona, Spain, he told reporters that he intends to retain the stake, although he hinted it could consider a withdrawal.
Every time we looked at this we have come to the conclusion that this (keeping the stake) is a good strategy. We want to stay in this asset, he said. This is not to say that the board over a period of time might not change its mind, he added. We are looking at this from a net value delivered to shareholders.
Sarin’s growth strategy is to concentrate on developing markets where there is low mobile penetration, which would guarantee market share growth. This is witnessed by Vodafone’s acquisitions in emerging markets such India, South Africa, and eastern Europe.
Realistically, Vodafone will be unlikely to want to sell its US stake because a minority shareholding in the number-two US mobile operator is better than no presence at all in the world’s most valuable market. Indeed, Sarin points out that Vodafone’s Verizon stake has grown in value by approximately $20bn in the past two years.
Yet Sarin has a problem in the US because the past two years of consolidation in the sector has left him with virtually no acquisition targets. Another drawback comes the fact that Verizon Wireless uses CDMA technology, instead of the GSM standard, which means that every time a Vodafone user enters the US, they are forced to roam on the GSM networks of T-Mobile USA or Cingular Wireless. This is frustrating for Vodafone, which losses out on lucrative roaming income.
Meanwhile the Newbury, UK-based company has announced that it is collaborating with Google Inc to develop innovative mobile search services for its customers. It will integrate Google’s search capability into its consumer service, Vodafone live! The new service will offer simultaneous search both on Vodafone live! and on the wider web.
Vodafone has also signed a five-year deal with Huawei Technologies to supply exclusive Vodafone-branded third generation phones (see separate story).
