Member Info for KevRow

"Namely - as Europe is overcoming recession, revenue will start growing quicker (with the added benefit of not wasting money keeping afloat section of the business that were underperforming i.e. Italy and Spain and releasing resources for additional investment where they earn their cost of capital), lower interest rates making debt burden easier to service, merger with three in the UK and overall more business friendly attitude by regulators and finally very cheap valuation which could result in a takeover deal."

I don't think any of those are out of the question, although I'm not sure who would want to buy Vodafone in it's entirety. Maybe private equity so they can asset strip. I definitely believe selling Vodafone Spain and Italy was the right thing to do as they would have only depreciated further in value under the current management.

"yes, it hasn't crashed from the halving of dividend, Italian sale and investing 4 Billion in Vodafone shares announcement"

It's more or less the same, so they have all just cancelled each other out? Assets sold to generate cash to buy back shares is viewed as zero sum?

"Providing profitability remains at least the same, then the money spent will be replenished, meaning that providing the market does not give a lower valuation to the business, and because shares are fewer in number, that would mean the price per share would be greater."

But the buy backs are not being funded with profits. They are being funded by selling off chunks of the business that won't be replenished.

According to the article being referred to:

https://hbr.org/2001/04/is-a-share-buyback-right-for-your-company

"Contrary to the common wisdom, buybacks don’t create value by increasing earnings per share. The company has, after all, spent cash to purchase those shares, and investors will adjust their valuations to reflect the reductions in both cash and shares, thereby canceling out any earnings-per-share effect. If increasing earnings per share were the only rationale for buybacks, they would have no impact on value"

"If I have a company worth £10 million and it has 10 million shares at a £1 each, using £5 million of the company’s cash to buy back 5 million shares means I'm left with a company still worth £10million (in the balance sheet of the company cash is substituted by the 5 million shares). The residual outstanding 5 million shares are now worth £2 each. "

In the scenario above, it sounds like the shares haven't been cancelled. It should like there would still be 10 million shares but the company would just own half of them?

"KeRow,

The companies cash in the bank is only a very small factor in the calculation of the market capitalization, so your argument is flawed. You are confusing the companies cash position with market capitalization (worth).

Many companies are in net debt after assets and liabilities are factored in, and yet their market capitalization is positive, not negative, because revenues, profits and cash flow are bigger factors for the MC."

Thanks for the reply.

It is still selling off an asset and using the cash to buy back your own shares rather than, for example, using excess profits such as when an oil &gas company might buy back shares when the oil price has been higher than expected. So why would selling off an asset/using cash on your balance sheet boost the price rather than just cancel each other out?

It just seems like moving money around as the market cap will be less and the number of shares will be less. I'm oversimplifying but I'm not clear where the value that will translate into a share price increase will be unlocked. Is the belief that once the company is 4 billion lighter, it will be worth the same?

"Rob

''i suspect it will be of no benefit whatsoever''

it is a 4 Billion euro benefit to shareholders."

But Vodafone will have 4 billion less cash afterwards, so why should it translate to a price increase?

If I have a company worth £10 million and it has 10 millions shares at a £1 each, using £5 million of the companies cash to buy back 5 million shares means I'm left with a company worth £5million with 5 million shares worth £1 each.

"'is selling core business units and doing buybacks.''

Not sure if part of a portfolio not make a profit can be classed as much of a core 'business'. "

Vodafone Spain and Italy were core as much as they were in the same business in those countries as they are in the UK etc. They just couldn't get a decent return in those countries as they struggled to complete, so getting rid was probably better than further managed, or mismanaged, decline.

"So, next week we have the competition regulators who have until Friday to decide whether to launch a further investigation into the deal / merger with Three3. SP to rise if they don’t or vice versa if they do?"

I'd say that it's very likely to go to phase 2, so more upside if it doesn't than downside if does.

"Half the posts here are seeing this as good news and looking forward to the SP growing in the next few months/years with mention of it breaking the 100p and half the posts here are doom and gloom and the SP will be droping, even mention of 35p! Looking at the SP today and the buy vs sells the market is similarly confused too!"

The share price going up to 100p would certainly make the share buybacks less impactful. Divi cuts/buybacks just seem to put a ceiling on the price rather than a floor.

At least if the divi going forward is based on any growth, it should be perceived as being sustainable which it clearly wasn't until now.

"Sale of Spain + Italy = 12bn. Current market cap c20bn. Vodafone have "recovered" 60% of the current market cap from two non core areas of their business AND they state the transactions are expected to be adjusted earnings positive. VOD is well undervalued. E& knew they were buying into a good fortune storey over the next five years. "

They have turned an asset into cash. They haven't conjured 12bn out of thin air.

I think selling them off is for the best as the current management team didn't seem to have the stomach or capability to turn them around.

"Porsche, it is churlish to say that buybacks are a complete waste of money. If VOD do as they say they will & spend 4 billion buying shares this is a saving of 88 million pounds on dividend payments alone."

They'd make more putting it in a saving account

Google Translate:

*** Vodafone-Fastweb: advisor at work, the agreement is close

March 13, 2024

(Il Sole 24 Ore Radiocor Plus) - Rome, 13 March - Close on the agreement between Swisscom, parent company of Fastweb, and the Vodafone group on the sale of Vodafone Italia. According to what Radiocor understands, the advisors are are the final details in Milan and an agreement is probably expected, within the week.

The negotiation exclusive, announced on 28 February, for the sale of 100% of Vodafone Italia to Swisscom and the subsequent merger with Fastweb, starts from an offer of 8 billion euros in cash and without debt.

The transaction, once the regulatory green light has been was obtained, created the first operator in Italy for fiber to the home (FTTH) with a market share of 36 percent. The Vodafone-Fastweb merger, compared to the Iliad-Fastweb merger,, would at first glance, has fewer antitrust risks.

At the end of January, Vodafone had had rejected the offer from the French group Iliadd envisaged a merger of the two telephone companies in Italy through a joint operation, 6.6 billion euros in cash to Vodafone and a loan for shareholders of 2 billion, based on a company value of 10.45 billion.

"This morning I read that Vodafone and Swisscom will probably close the agreement by the end of this week (Il Sole 24 Ore). Did you find similar news?"

https://www.ilsole24ore.com/radiocor/nRC_13.03.2024_19.59_73310733

"Someone started the rumour. If this individual or organisation had no real basis for it, it is a scam to increase the share price. It doesn't mean betaville or others were involved, they are just gullible participants. But if there was no plan for takeover as we now realise, then the rumour was a scam to ramp the price up. We have to accept we were duped and try harder next time."

As with all rumours of this nature, there may have been some truth to it i.e. someone could consider a bid and then take it no further. I doubt it, but it's possible.

If someone invested on the basis of the rumour with the caveat being given that by the source that it might be a load of rubbish, then noone has been duped. It's not a case of trying harder, as that isn't really trying at all.

"the rumour hasn't been tested through formal journalistic channels (public relations executives, bankers etc). The scuttlebutt might be complete codswallop - but then again there may be something in it, so it's worth airing on Betaville"

Given that the rumour was caveated as above, it's hardly a scam. The rumour itself didn't make sense, as any rival can just buy the bits of Vodafone it wants and avoid become another Vodafone themselves.

"You would buy VOD if you thought you could make $15bn by splitting it up [and you had access to the finance].

A rival telco might believe they can get part of the company completely free by selling off other parts"

Why would a rival telco be in a better place to do this than the current management team?

A rival telco of the magnitude required to buy Vodafone whole would surely only play a premium for any assets it wanted and was willing to jump through all the regulatory hoops to do so. It would make no sense to pay a premium for assets you don't want in the hope you can sell them on for an even higher premium when everyone knows you want, or need based on regulatory approval, to get rid of them ASAP.

Everyone seems to be of the opinion, including the current management, that Vodafone needs to be broken up. So it seems to me unlikely than any rival telco would want to takeover Vodafone in it's entirety rather than just pick off any bits that compliment their own business and keep any regulatory issues to a minimum