In 2000, British mobile phone company Vodafone Group plc (NASDAQ: VOD) bought a stake of slightly more than 2% in China Mobile Ltd. (NYSE: CHL), China’s largest mobile network. Vodafone upped its stake to about 3.2% in 2002, and said that it might ultimately acquire as much as 15%-20% of China Mobile, depending on what regulators allowed them to do.
In the early years of the new century, China’s mobile networks were just in the beginning stages and looked like good investments given the huge market and the virtually non-existent penetration. Other Chinese network carriers, including China Unicom Ltd. (NYSE: CHU) and China Telecom Corp. Ltd. (NYSE: CHA), were also entering the market and the Chinese companies wanted investments of both money and expertise from established carriers like Vodafone.
Now, Vodafone has changed its mind about holding a passive investment in China Mobile. Vodafone’s CEO has said that his company is not interested any more in managing minority positions, and the sale of the company’s stake in China Mobile is probably a harbinger of Vodafone’s future moves.
Vodafone is selling nearly 643 million shares of China Mobile through an accelerated book-built offering that is being managed by Goldman Sachs, Morgan Stanley, and UBS. The company expects to realize about $6.6 billion from the sale before tax and transaction costs. Bloomberg News reports that the shares are being offered at around $10.20. That’s a near doubling of the company’s original investment. Vodafone expects to continue “commercial and technology cooperation” with China Mobile.
Vodafone also owns a 45% stake in Verizon Wireless, another minority position, this time under Verizon Communications Inc. (NYSE: VZ). The company is considering a sale of its stake in Verizon Wireless as well as its 56% holding in French network operator SFR.
The possible sale of Vodafone’s stake in Verizon Wireless could make sense as speculation continues that Verizon will strike a deal with Apple Inc. (NASDAQ: AAPL) to sell the iPhone. Such a deal has been long-rumored, and the rumor alone is enough to boost Verizon’s share price. But once (if?) the deal is announced, Verizon will undoubtedly be stuck in the same boat as AT&T (NYSE: T). Apple gets a sweet deal, and the carriers get stuck trying to figure out a way to make their nut. The jury’s still out on whether or not AT&T’s tiered pricing scheme will succeed. Then there is the cost of upgrading the network to handle all the data
By selling its stake in China Mobile, Vodafone also avoids having to wade into the murky waters of China’s network mess. Each of the carriers supports a different version of 3G networking, and none is compatible with the other. There is sure to be more conflict as the carriers work toward 4G networking. And there is still little evidence that Chinese consumers want to use their phones for more than voice calls. Data services, and even text messaging, are not widely used in the country.
Vodafone got out of its stake as quickly as it could following the end of the lock-up period it agreed to when it bought its shares years ago. From the company’s point of view, that was not a moment too soon. Now it probably wants to try to repeat its timing with its share of Verizon Wireless.
As of this writing, Paul Ausick did not own a position in any of the stocks named here.
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