London: Mobile leader Vodafone has rejected a restructuring call by an activist investor lobby that would have unlocked up to $75 billion to shareholders, saying such business strategies could have prevented it from recent acquisitions such as Hutch-Essar in India.
Efficient Capital Structures (ECS), a hedge fund backed by telecom equipment maker Marconi Plc’s former CEO John Mayo, shot off a letter to Vodafone earlier this week claiming that restructuring could release 17-38 billion pounds in shareholder value and asked that four resolutions be put to vote at the company’s 24 July AGM.
However, Vodafone said in a regulatory filing late last night that its board has reviewed the proposals and “unanimously concluded that continued execution of its clearly stated strategy will deliver greater value for shareholders.”
Vodafone shares, which rose nearly 2% on 7 June 2007 after the disclosure of the restructuring call, dropped 1.5% to 156 pence a share in early morning trade on 8 June.
Vodafone said the proposed resolutions seek to allow shareholders to give directions to the board at lower voting thresholds and limit its ability to make acquisitions. It would also significantly constrain the board’s flexibility in managing Vodafone’s global business and implementing its successful strategy to deliver value to shareholders.
However, Vodafone said that the requirement to seek shareholder approval for acquisitions at the low levels would place it at a material disadvantage in competing for assets.
“This type of constraint could have prevented Vodafone from making many of the significant and attractive value creating acquisitions it has made in recent years, such as those in Romania, Turkey and India,” the company said.
Vodafone recently acquired a controlling stake for $10.9 billion in Hutch-Essar, the fourth largest mobile player in India, touted as one of the world’s fastest growing telecom market.
The board has already established and communicated clear financial criteria for all acquisition activity, the company said in its response to ECS’ proposals.
While asserting that the board welcomes an active and open dialogue with its shareholders, the company said it believes that implementation of “ECS’ proposals would not be in the interest of Vodafone’s shareholders.”
“In particular, the Board of Vodafone believes the proposals from ECS would undermine both its ability to maximise the value of its shareholding in Verizon Wireless and Vodafone’s ability to invest in its businesses as well as exploit potential value creating opportunities,” the company said.
Among other proposals, ECS has asked Vodafone to spin off its stake in the US joint venture Verizon Wireless and issue new shares and bonds to the shareholders.
Spinning off Vodafone’s 45% stake in Verizon Wireless would alone give Vodafone investors shares and bonds worth 34 billion pounds, the fund said.
While Vodafone’s board has outrightly rejected the proposals, ECS could still put out the the resolutions for a shareholder vote at the company’s AGM under the current regulations.
ECS holds 210,000 shares of Vodafone, which, under the UK company law, gives it a right to put forth the resolutions at the AGM.