The pressure continues to mount on Arun Sarin, the CEO of Vodafone Group Plc, as more details emerge of boardroom divisions at the world’s largest mobile operator.
Many will admit it has been a torrid few weeks for the head of Vodafone. In January he faced shareholder criticism from several large investors that want Vodafone to exit its US asset. One of the most outspoken has been Standard Life Investments, which holds a 1.9% stake Vodafone.
David Cumming, director of equities at Standard Life Investments has on numerous occasions openly criticized Sarin’s global strategy, especially his decision to hold onto Vodafone’s 45% stake in Verizon Wireless.
Sarin, however, has not ruled out any sell-off of the US stake, but will be acutely aware that once he offloads the stake, Vodafone will have little or no presence in the world’s most valuable market, as years of consolidation has left virtually no suitable takeover targets in that country.
Added to this are reports of a boardroom rift at Vodafone, which continue to circulate in the UK media on almost a daily basis. According to a report in the Daily Telegraph, the current troubles began at the board meeting that proceeded last week’s asset write-off, where between 23bn and 28bn pounds ($40bn and $48.7bn) was wiped off from the value of Vodafone’s assets, mostly related to its $188bn takeover of the German conglomerate Mannesmann AG six years ago.
That shock announcement also included a warning that Vodafone’s expects its growth rate to slow to between 5% and 6.5% in fiscal 2007, compared to a forecast 6% to 9% this year.
The Telegraph reported that at that meeting, the atmosphere was said to have been heated at best. The former CEO, Sir Christopher Gent, the key man behind Vodafone’s emergence as a global goliath, is thought to be angered that the write-down is principally attributed to the Mannesmann acquisition, a deal he constructed.
Sarin is actually taking a lot of flak for decisions made five years ago, said Phil Kendall, director of wireless network strategies at Strategy Analytics, a UK-based research and consulting organization. Indeed, there is little doubt that back in 2000, share prices in the telecommunications sector were significantly higher than today. It could be that Gent is also angered by Sarin’s willingness to consider exiting Vodafone’s crown jewels, namely its assets in the US and Japan.
Kendall argues that Vodafone was too isolated in the Japanese market, but that Vodafone does tend to do very well in the mature markets, where it is mostly a leading player. Vodafone stands out over fellow 3G operators in mature markets, he added.
Regarding a potential sale in the US, Kendall believes that Verizon’s public statements regarding its intension to acquire Vodafone’s 45% stake stand Sarin in good stead. However, he warned that Vodafone faces a potential 5bn pounds ($8.68bn) corporate gains tax if it offloads the US stake, which it will have to factor into any purchase price.
Meanwhile, it has emerged that the Japanese government may consider revoking a mobile phone license granted to Softbank Corp, if the broadband and telecommunications operator decides to acquire Vodafone’s Japanese unit, according to a report in the Sankei newspaper.
Last November Softbank was given a license to start mobile phone services as part of the government’s initiative in opening the door to new entrants for the first time in 12 years.