Vodafone & The Jedi Mind Trick

Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.
— Sun Tzu; The Art of War
The Vodafone board are being lauded in the UK press for their rapier like application in the timing and price of the Verizon stake sale. Has the world gone mad?

So, let me get this right. Vodafone are selling their bright, shiny, gleaming cash cow in the United States and buying odds and sods in Europe in the financial equivalent of selling a Degas at Christies and reinvesting the proceeds to buy a broken lava lamp at the local car boot sale. No doubt they’ll be spending like drunken sailors. Shareholders should despair.

In selling their best asset, (that would be the one they don’t manage), which is the best performing wireless carrier in the US, they spectacularly off load the one reason for owning the shares. The rest is a mixed bag of wireless operations spread over a geographically and economically diverse area, most of which are facing onerous economic headwinds. Moreover, VOD’s has structural problems not least of which is the continued pressure from free texting and messaging services over IP.

The Jedi Mind Trick perpetrated, and readily accepted by a community that yearns for extra performance, by the board disguises what a shoddy and amateur effort the negotiation was. Goldman view the action as a “serious reinvention plan.” Well, they would..... especially as Morgan Stanley completely outwitted them in negotiations.

The cap and collar, at $47 & $51, mean that for the share component, VOD shareholders won’t get any more shares should VZ fall, no matter how far Verizon fall below $47, as well they might with a potential looming credit downgrade. What is more, the loan notes are out at 8-11 year duration but should be closer in the 3-5 year zone with a credit like VZ.

The sell-side can’t believe their luck that some volume has at last returned to at least one blue chip but then the whole thing has the finger prints of investment bankers and consultants all over it and any consideration on a time scale of longer than the next bonus payment is actually not a consideration.

If I were a shareholder I would be spitting blood, incandescent angry. Given that the chances of the board being kicked out, as they should be, to run a fast food franchise, and I wouldn’t trust them to get that right, are minimal, shareholders can only hope that salvation might one day come from a bid for what’s left.

So, actions that may appear to be tactically astute may just, and I’m pretty confident in this assertion, prove to be anything but strategically.