Vodafone reacts to plunge in shares with £1bn buy-back

Vodafone has reacted swiftly to the biggest sell-off of its shares in its history with a £1bn share buy-back programme designed to boost confidence in its flagging valuation.

The mobile phone giant said yesterday it would ask shareholders to approve the buy-back at next Wednesday's annual meeting, after a 14 per cent fall in its share price on Tuesday.

That plunge was prompted by a warning from Vodafone that it anticipated revenues to be lower than expected this year, with an economic slowdown in many of its key markets depressing sales.

"Vodafone has considered the market reaction to the group's interim management statement and has decided to introduce a £1bn share repurchase programme with immediate effect," the company said. "This action reflects the board's belief that the share price significantly undervalues Vodafone."

Senior executives at Vodafone were taken aback by the savage market reaction to its warning, particularly since many areas of the business, especially in emerging markets, are continuing to perform well.

Arun Sarin, who will be replaced by Vittorio Colao as Vodafone's chief executive at next week's meeting, has insisted while the company is not immune to economic slowdown, it is "resilient".

However, market analysts said the share buy-back programme, in isolation, was unlikely to provide a significant short-term boost to Vodafone's share price, which has fallen by almost a third over the past 12 months.

Paul Howard, managing director of European telecoms and media research at Cazenove, said: "Given the possibility of further revenue and perhaps profit downgrades, it is difficult to envisage Vodafone shares staging any immediate and sustained recovery."

Amanda Purton, an equity analyst at Barclays Wealth, added: "This [buy-back] should hopefully provide some support for the shares in a weak market, but sentiment is likely to stay negative for Vodafone in the short term as investors worry about weakness in western Europe and the impact the economic slowdown is having on the business."

Vodafone also suffered on Tuesday from being the first large company in the telecoms sector, which has previously been seen as a relatively defensive refuge for investors, to warn of an impact from the slowdown. The company has been hit particularly hard in Spain, where revenues fell in the first half of the year.