Vodafone-Verizon Wireless spin-off: why ECGS recommends to vote NO at EGM called on January 28th, 2014

On Monday September 2, 2013, Verizon Communications agreed to pay USD 130 billion to buy Vodafone Group out of its U.S Wireless business. This agreement signed the History's third largest corporate deal announcement and might bring an end to a 14-years collaboration between the two telecommunication giants. While Vodafone shareholders will be gathered on January 28th, 2014 to approve the disposal of Vodafone activities in the U.S market, ECGS raised some concerns regarding the deal and recommends investors to oppose the resolution.

ECGS's rationales are described within the official Press release below:


ECGS recommends investors to vote against the Verizon-Wireless spin-off by Vodafone at the January 28th EGM

Expert Corporate Governance Service Ltd. (ECGS), a European partnership of local independent proxy advisors providing governance advices to institutional investors, released its proxy report in view of the Extraordinary General Meeting of the Vodafone shareholders called on January 28th, 2014 at the Hilton London Metropole Hotel.

ECGS has shared with Vodafone its concerns over the strategic, financial and governance merits of the transactions presented to the shareholders for approval, mainly concerning the agreement to dispose its 45% interest in Verizon Wireless to Verizon for a total consideration of approximately $130 billion (£79 billion). From a strategic point of view ECGS considers that the decision to pull out of the US market is debatable as Verizon Wireless’ leading position in a strong market is of great benefit to Vodafone shareholders.

ECGS considers that being a strong minority player can remain a favorable position to help develop the internal and external growth of Vodafone’s international activities. ECGS has concerns that selling this stake could represent a missed asset allocation opportunity, unless Vodafone decides to enter the US market directly, by acquiring a similar leading position, a strategic move which in any case would be neither easy nor cheap for the company.

From a financial point of view, there are concerns that the Verizon Wireless stake is sold for less than the current market multiple of Vodafone despite stronger earning capacities. Besides, such 12 times earnings multiple for the US sale appears insufficient to the independent analyst given the current positive strong growth and high profitability of the US wireless business and the long term expanding demand for speedier and more diverse services in the competitive American market.

Finally ECGS identifies a series of Corporate Governance concerns to be borne by Vodafone shareholders in case of approval of the resolution, related to Verizon’s share structure and lower US shareholders power. ECGS believes that maintaining Vodafone’s stake in Verizon Wireless would have ensured a better capacity to monitor the US investment and engage for better governance standards.

As proxy advisor, ECGS does not claim to represent any investor but acts solely in consideration of the long term interests of all shareholders. Thus neither the record size of this deal, the historical escalation of the price negotiated, the recent positive Vodafone stock price rally, the likely expected shareholders approval, nor the extensive banking fees spent for the sophisticated tax engineering of this transaction should be taken into account for the appraisal of the vote. ECGS invites therefore all voting investors, notwithstanding the likely expected large shareholders' support, to freely adopt the most appropriate long term decision for the best value of their portfolio. 


London January 10th, 2014