Friday, August 30 14:16:17
Top investors in Vodafone Group are set to clash over what the company should do with perhaps as much as $130 billion in proceeds from the sale of its stake in Verizon Wireless, which is expected to be announced imminently.
Vodafone shareholders contacted by Reuters as talks continued between the British firm and Verizon Communications were split between those wanting to see the cash returned as dividends and those wanting the firm to invest it.
Verizon is close to buying the 45 percent stake in the joint venture Verizon Wireless from Vodafone, according to sources.
While some investors relish the idea of a special dividend and buyback spree, others say Vodafone is selling its best asset and must reinvest much of the proceeds in the company's future to avoid reliance on low-growth European markets.
Vodafone's 12-month dividend yield stands at 5.5 percent compared with an average of 5.1 percent for its European and UK peer group, according to Thomson Reuters data.
A lucrative sale of its Verizon stake would free up cash to invest in new infrastructure or to acquire smaller players to diversify and offset a squeeze on revenues in the mobile phone market, where competition is strong and prices are declining.
"You only want a deal done if they are going to do something with it," said a fund manager at one of Vodafone's 10 largest shareholders, who declined to be named.
"The worst-case scenario is that Vodafone takes the money and just hands it all back to shareholders. Then you are left with a weird company that isn't really doing anything."
Vodafone has increasingly diversified from its "pure play" mobile strategy in the last 18 months, buying British fixed-line operator Cable & Wireless Worldwide for $1.6 billion last year and German cable operator Kabel Deutschland for $10 billion in June, its largest deal for six years.
It is also building a 1 billion euro fibre-optic network in Spain with France's Orange. Analysts have said fixed-line assets in Spain such as ONO or Italian broadband specialist Fastweb, which is owned by Swisscom, could be next on its shopping list.
Investors said Vodafone needed to make quick progress on this strategic shift or run the risk of becoming commercially obsolete in a market where many peers are selling packages that combine cable or satellite television, fixed-line services, broadband Internet and mobile phone deals.
"The problem for Vodafone is that they have no infrastructure to be able to offer this quad play ... Pure mobile phone operators are struggling; they have to keep cutting their prices to stay in line with players who can fall back on rising revenues from broadband," the top 10 investor said.