The chief executive of the world’s largest mobile operator, Vodafone Group Plc, gained some welcome support from its ninth-largest investor over his international growth strategy and management.
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 its US joint venture Verizon Wireless.
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 an estimated 25bn pounds ($44.64bn) plus. He said the move would give Vodafone a massive earnings uplift that would allow it to concentrate on its European and Asian businesses.
Then, days later, while reporting its year-end figures, Verizon Communication’s chief executive Ivan Seidenberg added to pressure when he made clear his desire to acquire the minority stake.
However, Vodafone’s ninth-largest shareholder, Insight Investment Management (Global) Ltd, has now criticised Vodafone’s rebel shareholders, calling the airing of their public concerns unhelpful and said it was undermining the operator.
Tim Rees, director of UK equities at Insight, recently told the Financial Times that Vodafone had a well articulated strategy that has been to effectively utilise its cash flow in three forms – to raise the dividend, to buy back shares, and lastly to make acquisitions as and when appropriate.
This public backing will be welcome news for Sarin, whose growth strategy is to concentrate on developing markets where there is low mobile penetration, which would guarentee 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. 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.