Wednesday, June 12, 2013

Vodafone - Kabel Deutschland: Meet Vittorio Colao - the new Sir Fred Goodwin

Vodafone it seems has made an "informal bid" for Kabel Deutschland.

We have a largish position in Vodafone - some of which we feel compelled to sell. I want to put on the record that I believe this is a nasty diminution of shareholder value and continues the management-board record of incompetence at Vodafone.

I live in Australia - and I have other commitments - so I do not want to run a spill of Vodafone's board myself - but I am happy - indeed eager - to encourage other people to do so.

If any large shareholders in Vodafone wish to organize a spill of the board please contact me. We will be more than willing to participate and will use this blog as a platform to publicize the cause. [We cannot do it ourselves - Bronte is a small operation without sufficient resources to take on a large company.]

For the record though - this blog has only ever taken on one major British CEO. I did it early when I did a series of posts labelled "Sir Fred Goodwin Death Watch". Here is the original one. Royal Bank of Scotland was then still above GBP5 per share. I was also - well before I started this blog - one of the sources for this story in Fortune about RBS.

Vittorio Colao the urbane but seemingly incompetent CEO of Vodafone is the new Sir Fred Goodwin.





John

13 comments:

kirkomi said...

Saw the shares down around 5% and then read the news on Reuters. Had exactly the same thought. Here they go again.

kirkomi said...

Vodafone's starting offer is to pat €7 bn, which is valuing the company at 4.21 times sales -- a gross overpayment in my opinion, especially for a company which is quite capital intensive (nearly half of the OCF goes into capital expenditure).

fattybadger said...

Do you not think Vodafone would be better off doing a deal with liberty?

Gets them lots of geographies. Including Germany. And a of Monday it also includes Virgin in the UK.

John Hempton said...

How about leasing back-haul and buying back their own stock?

Why pay 4 times revenue for a bad business when their own stock is trading sub 2 times revenue (after properly accounting for Verizon Wireless).

This is insane - and your suggestion is just as insane.

J

Ben said...

Cable is not a bad business John. I agree with you they shouldn't acquire KD8 at 12x EBITDA (reminds me of AT&T deal back in the day), but I do think the cable business in Europe is a better business than wireless in Europe. Cable has a superior network to incumbents and is taking share with a reasonably positive pricing dynamic; wireless has continually deteriorating pricing.

I think a lot of people think Vodafone is going to buy Liberty eventually with their taxed Verizon Wireless proceeds. Good luck.

memyselfandi007 said...

Hi John,

very good post. I am actually short Kabel Deutschland, so I am loosing here as well.

It is difficult to understand why Vodafone is so keen on overpaying for German companies. Although Kabel would be peanuts compared with Mannesmann.

My lesson here is again: "never underestimate the stupidity of others".

mmi

fatty badger said...

Sorry I think you misunderstood.

Not buy Liberty.

Sell to Liberty.

Stub Vodafone at 3.5XEBITDA after VZW sale has to be worth a quad play deal to Liberty.

Why put out the announcement confirming talks.

There is NO REQUIREMENT to make that announcement.

They just placed an advert.

fatty badger said...

So allow me to summarise:

The deal pushes Vodafone down a notch

The deal shoots Vodafone's bolt and prevents any further deal

The deal achieves very little other than saving carrier costs over the 4 week old Deutsche Tel deal.

€11bn buys you coverage of half of Germany.

The deal puts Verizon back on the front foot on VZW price negotiations.

Last time they leaked the story their stock fell over 5%.

Someone leaked the story for some reason.

Vodafone felt it necessary to comment on a rumour to give it credibility.

Just sell VZW and give us some cash.

Or sell the whole thing to Verizon and someone else to take the other mobile assets (Liberty or AT&T or anyone who likes them at 3.5xEBITDA)

Stop the flights of fantasy and stop market testing every strategic move. There is only one shareholders want to see Vodafone.

Anonymous said...

Why, if you are a small investor with literally the every company in the world a potential investment, would you make an investment in one with poor management, let alone a "largish" position?

It seems as though the world is your oyster. It also seems to me that pulling your hair out hoping that bad managemnt will make good decisions, or that they'll get replaced, or that the asset they happen to control will create value on its own, will be an exercise in futility.

Alternative Investment said...

Vodaphone is truly run incompetently. Shareholders best hope to get anything out of them is to push them to sell their huge Verizon stake (surely worth tens of billions?), and return it in either one huge dividend or substantially increased dividends over time.

Tirath Muchhala said...

Incentives are amazing eh. Give some people power and they run amok. Good comparison to RBS.
Also, not sure if you've heard but Vodafone India ought to be closer to a tax settlement in India - http://online.wsj.com/article/SB10001424127887324063304578525083219173760.html
And for a possible valuation of the India unit - http://articles.economictimes.indiatimes.com/2013-05-11/news/39186776_1_vodafone-india-ajay-piramal-piramal-group

Just FYI.
Cheers.

Nick said...

John,
1. Fred the Shred was taken down by the credit crunch as much as his own hubris. TV, broadband and mobile are the last payments consumers stop, even in a recession.
2. The CWW deal is an interesting comparison. VOD made out like bandits because the synergies were INSANE. The cost of renting backhaul is way more than people realise. So 12x or whatever may sound expensive but the synergies could make it a good deal.
3. Triple play and high speed broadband (>10Mbps) has revolutionised the cable offer. Quad play lowers churn even further. I believe in convergence. VOD can't build a fibre network anywhere in Europe - they have to buy.

4. Buy Ziggo.

Anonymous said...

Keep fighting the good fight, John. I hope some big shareholders take you up on your offer. For what its worth (admittedly very little) my small fund has about 100k shares of VOD and you have our votes.

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