People with have shares in Vodafone have good cause to be cheerful. They’re about to get a huge pay out 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. 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 the act. By losing real money in addition to the sort of paper losses Vodafone - which mostly paid for deals in shares - specialised in.
Happily, the US part of that Voders deal spree has at least ended rather well for its backers.
The strongest argument against reinvesting their windfalls 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 which is the latest to be linked to Voders in the wake of its taking 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.
Which is the problem with these sorts of media assets. The price can get very high, very quickly, and there’s now a whole industry that can see Vodafone coming.
What might 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 only lasts for six months.
In many ways, however, a bid from AT&T would also 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. The removal of what remains would make a bad situation worse. Insitutional investors need to think about that.
A better option for them 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’ that is deferred and subject to clawback.