Vodafone to mop up $76 bn to clear investor dues

Vodafone Group Plc, the world's biggest mobile-phone company, should return as much as 38 billion pounds ($76 billion) to investors by spinning off its Verizon Wireless stake and issuing bonds, a shareholder group said.

The stock rose as much as 3.5 percent. Under a proposal from Efficient Capital Structures, Vodafone investors would own stock and bonds valued at as much as 230 pence a share. Efficient Capital, backed by former Marconi Plc executive John Mayo, holds about 200,000 Vodafone shares, valued at about 315,000 pounds.

The plan may increase shareholder pressure on Vodafone Chief Executive Officer Arun Sarin, who last year overcame opposition from investors representing 9.5 percent of the shares voted at Vodafone's annual meeting. Newbury, England-based Vodafone has focused on emerging markets and last month bought a controlling stake in India's Hutchison Essar Ltd. for $10.7 billion to gain access to the world's fastest-growing wireless market.

``This is meant to put pressure on Sarin and the board. It's an easy trick to try but I'm not so sure this is going to fly,'' said Philippe Kiewiet de Jonge, who manages a $202 million telecommunications fund at ABN Amro Asset Management and holds Vodafone. ``Vodafone management is well aware of these issues.''

Efficient Capital in a letter asked for four motions to be put to Vodafone's annual meeting on July 24, the group said today in a statement. Vodafone said in a separate statement that it is reviewing the letter and will make a further announcement later.

Vodafone spokesman Mark Pursey declined to comment beyond the company's statement.

Shares of Vodafone traded at 156.5 pence as of 2:01 p.m. in London. Before today, they had gained 9.6 percent this year, after adding 13 percent last year.

Vodafone shares have ``underperformed'' the FTSE 100 because of an ``inefficient capital structure,'' the group said, counting from Jan. 1, 2002. The ``enormously valuable'' stake in Verizon Wireless should be returned to shareholders, Efficient Capital Chairman Glenn Cooper said in an interview today.

The company's stock fell 37 percent in 2002, when the FTSE 100 Index lost 24 percent. Yet in the past five years, the shares have risen 61 percent, when the index added 32 percent.

Sarin became CEO in 2003, inheriting a company that had spent $300 billion on acquisitions under predecessor Christopher Gent, including the $188 billion purchase of Germany's Mannesmann AG. The shares haven't recovered since the purchase when the stock traded at 312.22 pence on April 12, 2000, the day the acquisition closed.

At least three analysts said Efficient Capital's proposals lacked credibility. Efficient Capital's plan adds ``nothing new'' to the debate about improving Vodafone shareholder value, Dresdner Kleinwort analyst Robert Grindle wrote in a note. Though Citigroup analyst Terence Sinclair said he supports shareholder activism, the proposals are not a serious slate of suggestions.

Goldman Sachs analyst Simon Weeden said the proposals' ability to boost value probably won't be taken seriously.

Efficient Capital is backed by Beehive Capital, a fund run by Mayo. Under Mayo's tenure at Marconi he steered the company away from profitable businesses toward phone equipment as demand for those products peaked. In that time he turned a surplus of 4 billion pounds into a loss of 5 billion pounds.

Cooper today said the group isn't seeking the removal of Sarin, or to bring about a strategy change.

Vodafone said last week its full-year loss narrowed to 5.43 billion pounds from a record loss of 21.9 billion pounds a year earlier. The company forecast 2008 sales that exceeded some analysts' estimates.

The resolutions would give Vodafone investors shares reflecting its 45 percent stake in Verizon Wireless, the second- largest U.S. wireless company, and bonds worth 34 billion pounds, or 65 pence a share, the group said. New York-based Verizon Communications Inc. owns the remaining stake in Verizon Wireless.

In total, the resolutions would release 17 billion pounds to 38 billion pounds, or 33 pence to 73 pence, of value per Vodafone share, Efficient Capital said.

Operating profit at Verizon Wireless jumped 16 percent in the year ended March to 2.44 billion pounds.

Vodafone canceled a meeting with the group today, Efficient Capital spokesman Jason Nisse said. He said Efficient Capital had ``at least'' Vodafone 200,000 shares.

``Vodafone's utility-like European business can be more efficiently financed while shareholders can benefit from the strong performance of Verizon Wireless, through direct'' ownership in Verizon Wireless, Cooper said.

Some investors with small holdings have in past months put pressure on companies after seeing breakup or acquisition opportunities.

TCI Fund Management LLP, the London-based hedge fund run by Christopher Hohn, held about 1 percent of Amsterdam-based ABN Amro Holding NV when TCI began pushing for change. ABN is currently considering two takeover offers in what would be the biggest financial-services takeover.

Vodafone will need to consider the resolutions from Efficient Capital if it meets the criteria of the 1985 Companies Act, which requires companies to hear proposals from shareholders that hold at least 5 percent of the voting rights, or if their shareholder group consists of 100 shareholders.

Credit-default swaps based on 10 million euros ($13.5 million) of Vodafone debt rose 1,000 euros to 23,500 euros, according to Deutsche Bank. Credit-default swaps are based on corporate bonds and are used to speculate on a company's ability to repay debt. An increase indicates a worsening perception of credit quality.

The company had 15 billion pounds in debt at the end of March, a 13 percent decrease from a year earlier, according to a company statement last month.