By Liam Proud
LONDON (Reuters Breakingviews) - Vodafone’s departing chief executive, Vittorio Colao, is leaving a tough job for his successor Nick Read. A disciplined approach to acquisitions and investment has helped the mobile group beat peers’ returns. The challenge for Read, who is currently the company’s chief financial officer, is to make a success of the giant Liberty Global deal at a company that’s more used to pruning than growing its portfolio.
Colao, whose departure was announced alongside full-year results on Tuesday, leaves on a high. Since he took charge in July 2008, Vodafone has made an annualised return including dividends of about 11 percent, compared with the STOXX 600 Europe Telecom Index’s 7 percent. That is impressive given how much fierce competition, regulation and the growth of messaging services such as Facebook’s WhatsApp have dragged on Vodafone and peers in the past decade.
Chalk part of that peer-beating performance up to Colao’s restraint. Two of his most notable achievements - selling out of U.S. group Verizon Wireless in 2013 and merging with Indian operator Idea last year - showed a willingness to retreat at the right price. Asset sales, which Vodafone says totalled 116 billion euros during the Italian’s tenure, have been used wisely. Colao has spent 101 billion euros on capital expenditure and mobile spectrum, in contrast with rivals who have splashed cash on sports and other exclusive TV rights at the expense of network investment and shareholder returns. And offering customers more expensive packages that allow them to consume more data has also paid off.
His exit comes at a turning point. Disposals rather than acquisitions have been the bedrock of Vodafone’s M&A policy for a decade. But the group last week agreed to buy cable group Liberty Global’s German and eastern European assets for 18.4 billion euros including debt. The logic is sound: selling mobile, cable and broadband together boosts customer loyalty. Vodafone expects cost savings and extra revenue with a net present value of 7.5 billion euros from the deal, which it expects to close in the middle of next year.
Yet Vodafone’s share price, which is 6.5 percent below its early February level when the deal was first reported, implies investors are worried that antitrust concessions from Brussels will delay or slash the benefits of the deal. The tricky task of convincing them otherwise will be Read’s problem.
Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.
Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.