Outlook: Sarin's challenge to make Vodafone a global corporation

Weetabix sale; Telegraph Group; Telewest stand
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The Independent Online

Vodafone Group has a new chief executive, Arun Sarin, and as generally occurs when there's a new broom in the house, there's already been a change of strategy. Instead of spending shareholders' money, which has been the Vodafone way ever since the company was founded in 1982, he plans to give it back to them instead. We saw the first fruits of the approach yesterday with news of a £2.5bn share buy-back and a 20 per cent hike in the interim dividend. Does this mean we've already seen the best of Vodafone's growth phase? Hard to believe given what a new industry mobile telephony still is, yet in all probability also true.

The interim results show a company performing largely to script, in that it has begun to throw off enormous amounts of cash. Free cash flow in the half-year period was up 61 per cent to £4.6bn, which explains the decision to start paying back shareholders. For that the stock market thanked the company with a 6.3 per cent rise in the share price yesterday. Yet other aspects of the results were distinctly uninspiring. Revenue growth was just 13 per cent, average revenue per subscriber was flat, and the group is still miles behind its target of 20 per cent of revenue from non voice sources.

Vodafone is hardly alone in reporting such disappointing numbers. The whole industry is slowly but surely going ex-growth. The launch of third-generation services may temporarily reverse the trend, but nobody believes that 3G will provide anything like the boost once expected. It's terribly early for such an entrepreneurially driven company, but Vodafone is taking on the attributes of a utility stock. Yet the company still has one big advantage over its rivals: it is the only mobile operator with anything like a global presence.

The challenge for Mr Sarin is to make Vodafone's global footprint perform like a genuinely global corporation. Though the company has rebranded as Vodafone throughout many of the operations it has bought into worldwide, it is still essentially a collection of different local networks, with separate tariff structures, services and subscriber profiles. Crucially, Vodafone has neither management nor economic control over its mobile assets in the US. The same is true of France. If Mr Sarin can get these things right, then he will have built a lasting monument to Sir Christopher Gent's legacy.

Weetabix sale

Like everyone else, you might have thought that Weetabix was owned by Kellogg's, Nestlé, or one of the other big overseas foods groups. In fact it turns out to have been British all along, a high profile brand with a surprisingly low profile corporate presence.

The chairman, Sir Richard George, the third generation of his family to be involved with the company, would have liked to keep it that way, but after a long search for ambient brands - that is food stuffs with a long shelf life - to complement his raft of breakfast cereals, he was eventually forced to concede that there was nothing for sale even remotely as attractive as his own core product.

Yet in the battle for shelf space and bargaining power with the big supermarket groups, Weetabix has to get bigger if it is not eventually to be a lot smaller. The £642m offer from the US-based private equity house Hicks, Muse, Tate & Furst seemed to Sir Richard like too good an offer to refuse. Besides the money, Weetabix will fit neatly into the portfolio of food brands already owned by Hicks, Muse, which includes Typhoo tea and Branston pickle.

With Weetabix, Hicks, Muse will be close to achieving its aim of a UK food manufacturing group that might eventually take its place in the FTSE 100. For Lyndon Lea, the American financier who runs Hicks, Muse in Europe, the deal is therefore quite a coup. It's also something of a triumph for Sir Richard, even though it may mean the end of his family's involvement with the company. He's done his 3,000 shareholders, many of them the descendants of local farming families, proud. Watch out for counter bids. It's only once in a blue moon that assets like these come up for sale.

Telegraph Group

The phones have been ringing off the hook at Lazard ever since it was announced that the City investment bank has been retained by Hollinger International to examine strategic options for the company, including a possible sale of its main asset, the Telegraph Group. The list of suitors lengthens by the hour, many of them, it has to be said, more for the chance to take a look at the books than out of any serious intent.

I'm told that this also goes for Daily Mail & General Trust, which has apparently already reconciled itself to the likelihood that it would be blocked from buying the Telegraph Group on grounds of undue concentration of newspaper ownership. It would be another matter if Daily Mail were the only buyer of an insolvent newspaper, the circumstance that allowed News International to buy The Times in the early 1980s, but the Telegraph Group is not insolvent.

Insiders insist that nothing will happen quickly at Hollinger. They perhaps ought to think again. Hollinger International, the parent company for the Telegraph Group, doesn't appear to be any immediate danger financially, but it would be unwise to use that as an excuse for doing nothing. The cash crisis in Lord Black of Crossharbour's affairs lies further up the food chain in his holding companies, Hollinger Inc and Ravelston. Deprived of the fees they've been receiving from Hollinger International, they will find it even tougher to service the capital that supports their controlling stake in the company.

On the other hand, Hollinger International's affairs have become so hopelessly tangled up with those of Lord Black's other interests that some sort of a refinancing and consequent change of control has become all but inevitable. What is also clear is that the strategic review must move quickly to establish a plan of action if Hollinger is to prevent value marching out of the door. In business, there is nothing quite so debilitating as uncertainty.

From his Wapping fortress, Rupert Murdoch and his lieutenants will already be plotting a strategy for capitalising on the Telegraph's vulnerability. Ten years of price cutting at the Murdoch Times has failed to topple The Daily Telegraph from its position as Britain's biggest-selling daily broadsheet.

Though he claims to have abandoned the circulation war, replacing it with heavy investment to take The Times up market, it still rankles with Mr Murdoch that the original objective failed. Yet Mr Murdoch plays a long game, and the Telegraph Group's present weakness gives him a fresh opportunity to drive home his commercial advantage. The danger is that the longer Hollinger waits to address its problems, the less its assets will be worth when eventually it comes to sell them.

Telewest stand

Well done Stani Yassukovich, a former deputy chairman of the London Stock Exchange, for resigning from the board of Telewest on a point of principle. Such resignations are rare, so they deserve attention when they occur. The original terms for refinancing Britain's second largest cable operator were bad enough for existing shareholders, diluting them down to just 3 per cent of the enlarged share capital, but the revised terms demanded by bondholders are even worse - giving shareholders just 1.5 per cent. The Telewest board seems to have been completely supine in agreeing the new terms, which include re-domiciling the company to Delaware and uprooting the primary listing from London to America. The company has been hijacked by US-based vulture capital funds, and the board has wholly ignored the interests of other stakeholders in caving into their demands.