Vodafone’s net debt stands at approximately £33.3 billion. Following a recent board meeting and portfolio review, the company appears keen to sell off a number of its minority stakes. It made its original investment in China Mobile in 2000, a deal worth approximately £2 billion.
Vittorio Colao, chief executive at Vodafone said: “Today’s transaction achieves a near doubling of Vodafone’s original investment in China Mobile and combines our stated portfolio strategy with ongoing co-operation with China’s leading telecommunications company.”
“We took advantage of China Mobile’s share price being at one of its highest levels over the year to create value for shareholders,” said Simon Gordan, group media relations manager at Vodafone.
Vodafone will still have an active interest in the region and continue co-operation in roaming, network roadmap development, multinational customers and green technology. The sale of such a small stake is unlikely to have an impact on the Chinese market, nor does it substantially diminish Vodafone’s existing global footprint.
“Given that there is little prospect that Vodafone would ever gain a majority control of China Mobile, it makes sense to cash in now,” said Emeka Obiodu, analyst at Ovum. “The China mobile stake delivers some meat to shareholders without radically altering the group’s operational structure. This stake is so valuable now because of the boom in the Chinese market over the past 10 years.”
The company confirmed that it will return approximately 70% of net proceeds to the group’s shareholders and the remaining proceeds will contribute to reducing debt.
Analysts regard the potential sale of Vodafone’s 45% shareholding in Verizon Wireless as of far greater significance to the group’s strategy.
Obiodu said: “There has been a growing revolt amongst shareholders about the way Vodafone manages its asset portfolio. There has already been much talk of selling its Verizon stake in the US or its 44% stake in France operator SFR but at present it is all speculation. From the China Mobile sale, Vodafone’s portfolio strategy is about enhancing financial position rather than generating substantial operational economies of scale.”
The company recently announced a new organisational strategy focussing on the group’s operating companies divided by region to represent the different nature of assets, developments and potential in various sectors. “The aim of a new organisational structure is to reduce layers and simplify managerial governance,” added Gordan. “At this stage however, in terms of divestment, there shouldn’t be any direct crossover from one transaction to another.” ¦
