DOES this mark the end of the road for the great globalising adventure for Vodafone? It certainly looks that way.
Much depends on how one chooses to define global. Shorn of Japan, Vodafone will still have very sizeable international operations. Even if the company were to extricate itself from Verizon, the US operator in which it owns a 45 per cent stake, the company would still have fingers in pies all around the world. But if Vodafone disposes of its Japanese unit it would no longer be able to pretend it was the big beast in the global telecoms industry. Or that it ever could be.
This may be no bad thing. Indeed, it may be a positively good thing that Vodafone’s ambitions have matured from wanting to be the global player into being one of several important global players.
It may be eminently sensible for Vodafone to retrieve capital invested in a hard-pressed Japanese entity and recycle it into ventures where there is a more credible growth outlook. Recent investment by Vodafone in South Africa and India could be built upon to great effect. And although it would be foolish to assume that a sale of the US asset will automatically follow the disposal of Vodafone Japan, the company may well find it increasingly enticing to consider an exit from North America.
The price would have to be right, of course, just as Softbank could be rebuffed if it fails to offer a sensible price for Vodafone Japan. But few people have found Vodafone’s strategy in either Japan or the United States entirely convincing.
On the other hand Vodafone is, and has every chance of remaining, the dominant force in mobile telecoms across Europe. If investors saw Vodafone operating from an unassailable position in Europe they may give more wholehearted support to other emerging market investments.
At the same time Vodafone’s fortunes may improve if its first focus was Europe. The success of O2 is an object lesson here. The BT spin-off went from being seen as ugliest of ducklings to prettiest of swans in less than five years, largely because it concentrated on doing a few things really well.
Yet it remains remarkable that Vodafone is considering an exit from Japan. Anything and everything is always possible when it comes to matters commercial but Vodafone has always given the impression of being wedded to the big beast approach. Though it would be wrong to dismiss the talents of Arun Sarin in haste, the shifts implied by the Softbank announcement may increase the pressure on the chief executive.
Shareholders are clearly delighted. They added £5.7 billion to the value of the company yesterday, a sum equivalent to the minimum amount Vodafone can hope to raise in a sale. You could say this means investors believed that the Japanese arm was worthless within Vodafone and only has value outside it. It definitely indicates that Vodafone will disappoint in huge measure if it now fails to sell.
It also seems that Vodafone is already embarked on the next phase of its history. Many will have assumed that the John Bond era would start after the chairman of HSBC stepped up from being a non-executive and into the Vodafone chairmanship, which he is due to do in the summer. The Japanese move, coupled with the goodwill write-offs seen earlier this week, suggest Mr Bond is already making his presence felt.
Wake-up call for shareholders
IT IS no longer a question of whether a private equity operator can buy BT or a similar sized UK company with a household name and long heritage. It is a question of when an eye-catching deal of this sort will take place.
The real question is whether public market owners of BT and other big quoted companies now in the sights of private equity buyers should sell.
There is a price at which it is sensible for any investor to cash in chips, but it can be safely assumed that private equity will stop short of offering prices that cannot be refused.
They may offer sums that look generous beside the valuations now common among publicly listed equities. But this is because they are willing to take on more risk than public shareholders are used to. In riskadjusted terms, the returns from private equity may be indistinguishable from those acruing to publicly quoted equities.
Besides, there is no fundamental reason why a publicly listed company cannot indulge in private equity-style financial engineering. Nor is there any genuine reason why managers of publicly quoted companies should not be paid in line with private equity counterparts.
Public companies can and should endure short-term distruption to earnings if it serves long-term interests too, although it is often said that remedial action of this sort can happen only in private.
Public market investors will have to change their attitudes; if they do not they will be made to look like mugs by the private equity bandwagon. It is high time they woke up and smelt the generous slices of bacon being snatched from them.
Inflation cheer
INFLATION is rarely a cause for celebration. In Japan, however, families could be forgiven for waving flags and organising impromptu street parties to welcome the largest monthly rise in retail prices for eight years.
The 0.5 per cent increase in the consumer price index in February is the third monthly rise in prices in a row, a moment economists have been waiting for to signal that the deflation stifling the economy for most of this century is finally over. In theory, a falling cost of living sounds wonderful, aided by more competition in retailing and cheaper imports. In practice, deflation has put the lid on consumption, because there is no harm in waiting, and has gone along with falling wages and no growth.
Output grew strongly last year. If deflation really is over, that should continue and the Bank of Japan will even start charging interest again to lend money to commercial banks.
French leave
FRENCH secret services are on the lookout for any suspicious activity that might presage a takeover bid for a vulnerable “French” group, a term used flexibly to include Arcelor, based in Luxembourg, and Suez, many of whose assets are in Belgium. There is a distinctly Clouseau-esque quality about these yeux priveés. As with the Peter Sellers character in the Pink Panther films, there is also more than a faint whiff of bumbling idiocy about the unnecessary and ultimately impoverishing protectionist proclivities they serve.
