Lex: Vodafone
Published: February 26 2001 20:43GMT | Last Updated: February 26 2001 20:45GMT
Vodafone's shares may have lost half their value in the past year, but the company's hunger for acquisitions shows no sign of being sated. The purchase of AT&T's 10 per cent stake in Japan Telecom could be announced as early as Tuesday. Regulators permitting, Optus should follow shortly. Some investors are tiring of this sport, which brings a constant flow of Vodafone paper on to the market and is running down its relatively strong debt capacity. Most, though, remain supportive.
In principle, acquisitions make as much sense in bear markets as bull ones; the more so if you can pick up assets for cash on the cheap. For stock acquisitions, what matters is relative valuation. Since this time last year, Vodafone has underperformed the Datastream global wireless telecom index by 1 per cent - hardly a ringing endorsement of its strategy, but not a barrier to further stock deals. Vodafone's capacity to take on more debt is not huge; the sale of Infostrada will probably be renegotiated, and some of the free cash flow that appears in its consolidated accounts is in part-owned subsidiaries, which does not flow through to the parent. However, Vodafone may get more than the minimum payment owed for Orange from France Telecom. There is still slack - a little.
That said, in this bear market, Vodafone needs to take steps to reduce the overhang of shares left with those who have sold assets to it - currently 6 per cent of its outstanding stock. And it should at least consider (with due scepticism) paying for acquisitions with unlisted stock in its regional operations. |
