Vodafone Could Sell Out Of UK – A Good Idea?

Vodafone Group PLC (LON: VOD) has been coming under significant activist shareholder pressure in recent weeks. This is largely the reason for the continued rise in the share price at Vodafone. The big question becomes, well, if they do change strategy will they change it the right way?

The background here is that mobile phones are, in the rich world at least, largely a mature business sector now. Near everyone who is ever going to have one already does. There’s no new grand untapped market to conquer. Yes, new generations of technology arrive, 3G to 4G to 5G but those just mean having to plough ever more capital into the system.

This all rather means that there’s no great growth story to tell at Vodafone. It’s a mature business sector so it is operational efficiency that matters, not conquering new territory.

This is the case being made by certain of Vodafone’s shareholders such as the Swedish activist investor, Cevian Capital. It’s a valid enough case too.

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The specific action that Vodafone has just taken is to reorganise the large company portion of the business. This is now, instead of being a free-floating unit, to be split so that each geographic sector comes under the local country unit. That sounds a little dry, but it does make it easier to hive off each country unit to another buyer if that is desired.

Which is perhaps the case that Cevian and others are making. Some country units can – maybe – be sold for more than they are currently valued within Vodafone. If so, sell them and then, well, and then well what?

The thing being that Vodafone has been here before, a few years back. They sold a chunk of the business and the argument then was, well, do they return money to shareholders in a special dividend or go buy something else with the capital? In 2013 the spin-off of the American business, Verizon, led to a special dividend and also a share distribution for example. The combined value of retained Vodafone shares, Verizon stock and cash was significantly more than the starting point of Vodafone shares. That’s value creation for shareholders, the entire point of a company existing.

Now, whether this will all work again is another matter. But that’s what the calculation is concerning Vodafone. Is it possible to create value by sliding some assets off into either separate listings or selling them to other operators? If so, will shareholders in the current Vodafone benefit from that happening? Cevian and others are arguing that yes, this could well be true. Vodafone seems to be structuring the business to make this easier to do if it seems worthwhile.

For us, as traders, the bet is whether action really will be taken under this pressure. The more likely it becomes that there will be asset disposals the better the Vodafone share price is going to look.