HEARD ON THE STREET: Sleepless Nights At Vodafone

By Hester Plumridge A DOW JONES COLUMN Sir John Bond can sleep a little easier - for now. The Vodafone chairman is under pressure from the Ontario Teachers' Pension Plan which is unhappy with the U.K. mobile telecom group's strategy and says it will vote to oust Mr. Bond and his deputy, John Buchanan, at the annual meeting on 27 July. But a hastily announced strategic review due this autumn, combined with better than expected second quarter services revenues of GBP10.6 billion, buys the pair some time. They should use it to accelerate plans to rationalize Vodafone's disparate businesses and investments - or see shareholder dissatisfaction spread. OTPP's criticism is warranted. Vodafone trades at a 40% discount to a sum of the parts valuation, according to Sanford Bernstein. OTTP blames this on the group's record of poor capital allocation and "disastrous" deal-making. Acquisition write-downs have totaled GBP51 billion since 2001, equal to two-thirds of Vodafone's market capitalization. The group's exposure to the U.S., France and China is through minority investments, which restrict control over investment decisions and visibility on cashflows. Vittorio Colao has slowed the frenetic deal activity since becoming chief executive in 2008. Aside from raising its stake in pan-African group Vodacom, there have been no multi-billion dollar deals since the 2007 purchase of Hutch Essar. But Mr. Colao has been slow to sell assets, despite saying he has no wish to manage minority investments. True, agreeing on price can be tough. The sale of Vodafone's Egyptian business broke down in June over concerns on buyer funding. And Vodafone argues its decision to hang onto its stake in Verizon Wireless has been a good one as the U.S. mobile group's value has grown in recent years. But selling its stake in French group SFR or China Mobile would help convince shareholders Vodafone is actively managing its business. An SFR sale could raise some EUR8 billion, money which could be used to help reduce high debt levels of around 2.3 times Ebitda, or invest more heavily in networks and data services. For now, the pressure on Vodafone's board is limited to just one shareholder with a 0.4% stake. The strategic review will determine if it stays that way. (Hester Plumridge is a writer for Heard on the Street. She can be reached on +44 20 7842 9267 or hester.plumridge@dowjones.com) TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at TalkbackEurope@dowjones.com. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments. (END) Dow Jones Newswires July 23, 2010 11:54 ET (15:54 GMT)