David Prosser: Call waiting... Colao has yet to make the big decisions at Vodafone
The more dramatic strategic option for Vodafone now would be to pursue a fully fledged merger with Verizon Communications
Tuesday 05 April 2011
It's a marathon not a sprint. That might be the best way to characterise where Vittorio Colao, chief executive of Vodafone, now stands with his plans to refocus the telecoms giant. The sale of Vodafone's minority stake in France's SFR amounts to a confident passing of the 13-mile mark. But the slog to the finishing line will be a lengthy one and there is still "the wall" to get past.
We should be gracious. Mr Colao's efforts to clean up Vodafone's messy portfolio of interests continues to proceed well. The French sale – lauded yesterday as having been agreed on terms very much in Vodafone's favour – follows similar disposals in Japan and China. Vodafone's difficulties in India are also being resolved and a deal looks imminent for its exit from the Polish market.
That, however, will still leave Vodafone with one huge minority stake in an overseas venture – its 45 per cent interest in Verizon Wireless, the mobile subsidiary of America's Verizon Communications. This stake has long been a pain in the neck for Vodafone, which has seen Verizon Communications refuse to sanction a dividend payment by its subsidiary since 2005.
Officially, the reason for that is Verizon's wish to see the company pay off its debt before paying out dividends. But plenty of companies with gearing still pay shareholders a handsome income: the unofficial reason for denying Vodafone a return is that Verizon Communications wants to press the British company into selling its interest. And the trouble with that ambition is that even were Mr Colao happy to do so, a deal would land Vodafone with a capital gains tax bill – $10bn (£6.2bn) or more, analysts estimate.
How, then, might the impasse be resolved? Well, the good news is that Verizon Wireless will be debt-free by the end of the year. That, combined with a decent personal relationship between Mr Colao and Verizon Communications' management (better than Mr Colao's predecessors' relationships, that is), is expected to see Verizon Wireless at last resume dividend payments in 2012. The decision is due in November.
Then will come the really big choices. Will Mr Colao finally decide that having secured some additional value for shareholders, he can sell this stake with no loss of face, perhaps mitigating the tax problem via some sort of deal in Italy, where Verizon has a stake in Vodafone's business? That would be a continuation of the policy that has seen the company sell SFR and the rest.
The more dramatic option would be to transform the collaboration on Verizon Wireless into a fully fledged merger between the two parent companies. Don't rule that out.
Lessons from Chinafor Glencore
What does the Chinese-financed Minmetals Resources bid for Australia's Equinox Minerals tell us? Well, first, it demonstrates that China's appetite for securing natural resources is ongoing – and that the country is prepared to pay through the nose, with Minmetals paying a third more than Equinox's market value as at the end of last week. Second, it offers interesting insights into why Glencore, the Swiss commodities trader, might finally be preparing to put its secretive nature to one side in favour of a $60bn IPO.
One way of looking at this is to say that in going for a listing, Glencore is conceding the additional financial firepower that a float would provide has now become more important to it than its desire to remain a private company with fewer responsibilities to divulge what it is up to. The Equinox deal is an example of why this rationale has come to the fore: without additional firepower, even Glencore, until now more than capable of holding its own in the competition for assets, will struggle to compete with the Chinese.
There is an alternative read-across from the Equinox deal to Glencore, however. One might say the Chinese are over-paying for the company. The premium makes sense only if you think the copper price will continue to soar in the years ahead – if you buy the idea of the commodity super-cycle, in other words. But not everyone does. They point out copper is almost 10 per cent off the highs – well above $10,000 a metric tonne – seen only a couple of months ago.
What if Glencore quietly shares that view? It might just havedecided that it needs to get its flotation away now in order to cash in at the top of the commodities market.
Don't buy the end of tax year rush
Today is the day the savings industry loves more than any other. The end of the tax year at midnight gives every financial servicescompany in the land the opportunity to sell customers products predicated on tax reliefs that will be lost for good if they are not taken up now. From individual savings accounts down, the message is simple: end of season sale, everything must go.
It's a daft system. For one thing, for all the billions poured into tax reliefs, there is little evidence that savers are putting money by for the long-term that they would otherwise have frittered away. Tax breaks may encourage people to save via one vehicle rather than another, but do not necessarily increase the total saving stock.
For another, tax breaks are all about the short term. They encourage people to make decisions for entirely the wrong reason – to get a discount of a few quid on this year's tax bill rather than because of sensible long-term financial planning.
Finally, this is also a system that leaves people with gaps in their families' finances. It encourages people to think about individual products, rather than looking at all their financial needs in the round.
Expensive, inefficient and dangerous? That sounds like a ripe opportunity for austerity savings to me. But don't bet on the Chancellor risking any further wrath from the squeezed middle.
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