Vodafone investors should start counting their reasons to be cheerful


People with shares in Vodafone have good cause to be cheerful. They’re about to get a huge payout from the group’s sale of its part of its US joint venture Verizon Wireless.

The proceeds will be paid in Verizon shares, but most investors will sell them, and deciding what to do with the cash realised is a nice problem to have.

Voders spent a long time gobbling up everything in sight, then a long time writing down the value of the bits and pieces it bought, leading to some of the biggest losses in British corporate history until the banking industry decided it wanted in on the act... by losing real money in addition to the sort of paper losses Vodafone – which mostly paid for deals in shares – specialised in.

The US part of Voders’ deal spree has at least ended well for its backers.

But the strongest argument against reinvesting the windfall it has provided in the new Vodafone is that the company is about to embark on a fresh deal spree.

Oh no! Or should that be Ono! – the Spanish cable company and the latest to be linked to Voders, which took out a German cable provider a while back.

There have even been suggestions that BSkyB might be on the agenda. The fate of that business will ultimately depend on Rupert Murdoch’s quixotic decision-making, but you can be sure he won’t let it go cheap.

The problem of media assets like this generally is that the price can get very high, very quickly. There’s now a whole industry that can now see Vodafone coming.

What might still save shareholders from another bout of writedownitis (and a good reason for investing in the shares) is that Vodafone could yet become part of someone else’s bid spree.

America’s AT&T is out of the picture for the moment, but its Takeover Panel purdah lasts for six months only.  

In many ways, however, a bid from AT&T would be an unpalatable option. The UK stock market is already over-weighted towards a handful of banks and big mining companies. Vodafone’s Verizon sale exacerbates that.

A better option for institutional investors would be for the pay of Vodafone executives to be structured to militate against them doing silly things. This could be achieved by following a rare good idea from banking, and increasing the proportion of Vodafone executives’ pay that is deferred and made subject to clawback.

Is the Dixons and Carphone merger a suitable marriage?

 The creation of a £3.5bn retail giant was how the potential merger of Dixons and Carphone Warehouse was reported in some quarters.

It is, of course, worth remembering that that is what Dixons once was on its own, before a combination of the internet, the economy and the inability of some myopic management teams to respond to both took a big chunk out of its business.

Europe’s second largest electrical retailer has looked more sprightly of late, although that is in part because competitors such as Comet have done even worse.

Carphone, however, could put it back among the aristocracy of retail, at least in the short term. The latter’s performance has been a lot more than sprightly of late. If you’d invested 18 months ago or so you’d have seen the value of your holding more than doubling.

More recently Charles Dunstone’s baby has been boosted by a deal to open a chain of standalone Samsung shops. How that would work under a merger with Dixons is one of those pesky details that needs to be worked out if these two are to consummate their relationship. A full-scale marriage would appear to be more in Dixons’ interests than in Carphone’s, beyond the obvious savings in terms of costs that could be reaped.

Connected devices are hot, but a strength for Dixons they are not, unless you count tablets, a big driver for sales of late.

That said, the future for both sides remains similarly murky; Carphone isn’t free of challenges, including the fact that mobile networks would really rather sell to consumers direct.

The enhanced diversity that a deal with Dixons would offer could therefore come in quite handy. Dunstone, who would likely become chairman of the merged business and would seem to be driving this, is nobody’s fool.

HSBC turns out to be one of the more conservative banks

 Given its previous involvement with Mexican drug cartels and US sub prime mortgages, combined with a fondness for paying millions to the people responsible (and to their successors today), it might surprise you that HSBC is actually one of the world’s more conservatively run banks.

It is apparently getting more conservative. The amount of money held on deposit at central banks has increased sharply while positions in derivatives have moved in the opposite direction. These were among the nuggets to be gleaned from HSBC’s 594-page annual report, plus nearly 400 pages of subsidiary disclosures.

There are those who have argued that this trend, reflected across banking and in no small part due to increased regulation, is a bad thing. They claim that it will hinder economic growth and recovery.

The size of HSBC’s doorstep thick disclosures is proof that too much regulation is not necessarily a good thing. If there is a nasty in there, how on earth would you find it? But, the trend to more conservative banks is to be welcomed. While it might make for slower growth in the short term, what growth there is should be more sustainable and less prone to the sort of brutal bust sparked by the financial crisis.

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