Title: Vodafone attacked over "inefficient capital"

UK operator Vodafone has been sent a list of four resolutions outlining a proposed shake up of its capital structure. The carrier is required to put the resolutions to its shareholders at its forthcoming AGM on July 24.

A letter sent to all Vodafone shareholders by investment activist group, Efficient Capital Structures (ECS), states that the carrier’s shares have performed badly over recent years. The company’s share price today is no higher than it was in January 2002 – since when the FTSE 100 index has risen by 28 per cent. ECS also claims that the operator’s market valuation does not reflect the real underlying value of the company.

The resolutions are designed to improve what ECS describes as “Vodafone’s inefficient capital structure” and release up to 73p per share of value for investors. The resolutions, if passed, would give Vodafone investors shares reflecting the carrier’s 45 per cent interest in Verizon Wireless and bonds worth £34bn, or 65p a share.

“Vodafone’s utility-like European business can be more efficiently financed while shareholders can benefit from the strong performance of Verizon Wireless, through direct pro-rata ownership of Verizon Wireless Shares,” said ECS chairman Glenn Cooper. “Together these proposals can be executed in an efficient manner and we estimate they would release between £17bn and £38bn of shareholder value.”

The so-called “global savings glut” has made debt a favoured form of financing in the last few years, so ECS’s approach is hardly unprecedented. But it was only five years ago that the stock market was wringing its hands over the great telecoms debt crisis.

The proposals have met with a mixed reaction from City analysts. Some question the credibility and motives of ECS, specifically those of one of the firm’s key backers John Mayo, former deputy chief executive of Marconi. It was Mayo after all, who decided to load up GEC-Marconi with debt, flog its cashcow defence interests and hand out the cash pile to the shareholders.

“[Vodafone’s] share price has risen significantly over the last year. People, investors, have been impressed with the current structure and strategy,” a source close to Vodafone told telecoms.com. “The exact terms of the restructuring are unclear. Investors will be asking themselves whether piling on further debt is really the right approach.”

An official statement from Vodafone is expected within 24 hours.