Vodafone and Verizon – how will they use the cash?

PRESS RELEASE 50 (31/08/2013)

ShareSoc welcomes the announcement that discussions on the disposal of Vodafone’s stake in Verizon Wireless are being pursued. But our main concern is what the company will do with the cash they might receive (which may be over US$100bn).

Vodafone is a company that favours market share buybacks, when most private investors do not. The company has spent £19.5 billion on buybacks in the last ten years (see below) plus £1 billion in the last quarter alone.

ShareSoc prefers to see increased dividends or tender offers to shareholders rather than market buybacks. That is of course assuming that the company cannot find a better use for its cash by reinvesting it in business opportunities. There has been a suggestion that it might invest some of it in developing its European operations. But we would need convincing that is a sensible strategy when telecoms markets worldwide are becoming more competitive – particularly in Europe where they also face regulatory pressures. Many shareholders are already concerned about past acquisitions by Vodafone and the return on capital that they will generate.

Our main argument against market buybacks are that they do not enable all shareholders to necessarily participate in the share capital reduction. A tender offer is a more equitable approach. Buybacks are sometimes perceived as supporting the share price, or “mopping up” large holders who wish to sell, but the evidence of any benefit from that approach is scant. Instead market share buy-backs provide an illusion of a healthy business by increasing the apparent earnings per share when the underlying operations of the business are going nowhere.

It might also be worth the company considering reducing its debt mountain (£28bn at the last year end).

We will be writing to the Chairman of the company giving our views on this matter, and asking institutional investors to support our stance.

Notes

Vodafone’s market share buybacks in the last ten years are given here: www.vodafone.com/content/index/investors/shareholders/share_buyback_programme.html

To appreciate the magnitude of past share buybacks at Vodafone, if the £1.2bn spent on buybacks in the year ending March 2013 (which was in fact the lowest such expenditure in the last three years) had been spent on increasing the dividend last year instead, then the dividend would have increased by 25%.

For further information, please contact:

Roger W. Lawson,
Chairman, ShareSoc
Telephone: 020-8467-2686 

Or; Stan Grierson, ShareSoc
Telephone 01628-522514

Note: Any members of the press who wish to receive a complimentary copy of our informative monthly newsletter should send a request via our Contact page . Our newsletters cover not just the affairs of our organisation but contain general financial news and commentary. An example of our past newsletters is available on our web site. You can also follow ShareSoc on Twitter from @ShareSocUK.

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