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TMFDeej (99.46)

Vodafone is finally divesting its minority stakes

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September 02, 2010 – Comments (7) | RELATED TICKERS: VOD

 

Finally.  Vodafone (VOD) is rumored to be in the process of selling its minority stakes in a number of telecom companies.  

Returning Returns At Vodafone

First up on the block is VOD's 3.2% stake in China Mobile (CHL), which is worth approximately $6.47 billion.  That's a lot of money, even for a company that's as big as VOD.  

The monetization of these assets, which it doesn't seem that Mr. Market is giving it enough credit for, is one of the potential catalysts that I was looking for when I initially invested in Vodafone.  

I take exception with the author of this article's interpretation of the action though.  Selling Vodafone's small stake in CHL should be a very easy decision for the company's CEO Vittorio Colao to make.  

I firmly believe that companies shouldn't just go around investing in the stock of other companies, even ones that are in the same industry, unless there is some strategic business reason for them to do so.  If I wanted someone to invest my money for me, and that essentially what Vodafone's cash is to shareholders, I would hire an investment advisor...not a telecom company.  Heck, I could buy shares of China Mobile myself if I really wanted to.  Companies should either invest their excess cash in parts of their business that can provide attractive ROIC or return the money to shareholders, not use it to speculate in the stock market.

Deej

7 Comments – Post Your Own

#1) On September 02, 2010 at 7:52 PM, rofgile (98.99) wrote:

It is very strange that Vodafone would invest in another telecom.  I am also glad they are selling out of China Mobile.  I think there were some european telecoms they were going to reduce holdings in as well- Poland and France:

" Bankers and analysts believe Vodafone is likely to sell its near 25 per cent holding in Poland's top mobile telecoms firm Polkomtel as opposed to buying out the other owners. An initial public offering (IPO) is another option. 


Its 3.2 per cent holding in China Mobile is seen as an easier asset to sell, while the 44 per cent holding in France's SFR is also likely to go eventually. "

--

 That seems smart.  I also like that they are selling lots of Android devices now.. that's also a great direction.  They were going to start carrying an Android tablet soon.

 I think VOD could be a good investment if they resolve the India tax debacle and get their dividends from VZ.

 -Rof 

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#2) On September 02, 2010 at 11:07 PM, vriguy (80.32) wrote:

I thought VOD was attractive at 20 and bought a few hundred shares.  It is up to almost 25 now and it appears to be close to fair value in my personal estimate, and overvalued in comparison to many other blue chips. How much is this company worth, you think?  Or, put another way, what would be a good exit point?

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#3) On September 03, 2010 at 6:14 AM, TMFDeej (99.46) wrote:

Hi Vriguy.  Thanks for reading and commenting.

I still think that VOD has a lot of potential catalysts that could every easily cause its performance and in turn stock price to increase in the future.

These catalysts include the introduction of the iPhone for Verizon Wireless.

Verizon finally relenting and paying VOD substantial dividends from the U.S. wireless operations.

The divestiture and intelligent use of the funds from the sale in its minority stakes in a number of telecoms.

A positive decision in the Indian tax situation or even the spin-off of its Indian operations. 

Any improvement in the global economy...though I'm not holding my breath for this one. 

I'm going to continue to hold VOD and collect its solid dividend until some of these things happen.

Deej 

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#4) On September 03, 2010 at 2:01 PM, vriguy (80.32) wrote:

Thank you for the additional insight. I really appreciate all the work you put into your blog postings. Of all the excellent bloggers on CAPS you are the only one on my RSS feed.

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#5) On September 03, 2010 at 2:48 PM, TMFDeej (99.46) wrote:

You're very welcome, vriguy.  I appreciate the kind words.

Have a great weekend :).

Deej 

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#6) On September 03, 2010 at 3:24 PM, umps15 (21.30) wrote:

"I firmly believe that companies shouldn't just go around investing in the stock of other companies, even ones that are in the same industry, unless there is some strategic business reason for them to do so. If I wanted someone to invest my money for me, and that essentially what Vodafone's cash is to shareholders, I would hire an investment advisor.."

 Really? I would assume that a telecom company would know more about the telecom business than any of these so called "analysts"  or "investment advisors".. In fact, I would think that they are the most qualified to make investments in the telecom business because they are the telecom business. I mean... I know this is illegal but if they are a competent operation, how could they NOT have insider knowledge regarding companies that are essentially their competitor/peers??

I wonder what kind of percentage returns they got from their investments in CHL??  

 

 

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#7) On September 03, 2010 at 3:50 PM, TMFDeej (99.46) wrote:

Umps.  Companies should stick to their knitting.  I would hope that VOD knows a lot about the telecom business.  That doesn't mean that I want them to be my stock broker or to act like a quasi-hedge fund and to invest shareholder funds in other companies that I could just as easily buy myself.

I'm sure that VOD made huge money on its CHL investment.  I wouldn't be surprised if it has made a number of losing investments in stocks as well.  It's not companies' places to be investment banks for their shareholders.  

That's what drives me nuts about companies like Microsoft setting up huge trading divisions to manage their money. Really?  That's what they're wasting their time on?  They should either invest their funds in their operations by expanding their business internally, making an acquisition, or return shareholders their money.

There's no right or wrong answer to this issue, but I bet you that for every successful investment like VOD's in CHL there has been many more bad equity investments by companies out there.

Deej

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