Vodafone Rejects Calls From Activist Investor

Vodafone investor Efficient Capital Structures (“ECS”) has called for a restructuring of Vodafone including a spin-off of its share in the Verizon Wireless business and taking on massive debt of 34 billion pounds (US$66 billion) to give back to shareholders. Vodafone has issued a response to the demands explaining why they are a bad idea. The people proposing the idea are coming under a bit of flack in the media, for example The Guardian details the background of two of the group: “Glenn Cooper, the investment banker who floated Man Utd in 1991 when he worked at Henry Ansbacher & Co. At the time he was best known in the City as the man who rejected Bobby Charlton and Michael Knighton for the board of the company and recruited the late Sir Roland Smith as non-executive chairman…Alongside him is believed to be the former Marconi chief executive designate John Mayo. He played a leading role in the acquisitions spree designed to turn the once great defence conglomerate GEC, favoured by widows and orphans, into a telecommunications group called Marconi. He was blamed, along with chief executive George Simpson, for the collapse which saw the company’s value fall from £34bn to just £66m.”

Bloomberg has an article quoting a number of analysts deriding the suggestions by ECS and claiming they “lacked credibility”. Dow Jones has taken a different approach and looked at it from Verizon’s point of view, arguing that the US telco “doesn’t need Verizon Wireless as much as it did in the past” because its other businesses are looking healthier. Basically, they’re not willing to offer Vodafone what the UK company wants for its share in Verizon Wireless. The article also quotes an analyst as saying “there is little that Vodafone could do to help its business with that extra cash”.

Of course, ECS just wants Vodafone to give the cash back to shareholders. That could make sense for the sale of the Verizon share, but I can’t see any financial sense is borrowing money to return to shareholders when they still own the debt and it drags the performance of the company (that amount of extra debt will raise the interest on all its debt, claims Vodafone)…unless the shareholders plan to take the money and run.

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