Bernstein analyst Robin Bienenstock has opened her heart to the management and board of Vodafone — via an open letter.
And she does not hold back.
In it she laments the fact that Vodafone “has the potential to become the most compelling transformational story in European Telecoms,” but is atrophying amid a lack of strategic chutzpah and managerial strength in depth.
Contrast this with France Telecom which pushed on with the consolidation on European mobile sector on Wednesday by merging its Swiss arm with TDC’s Sunrise.
Part of the reason for Vodafone stumbling, Bernstein says, is that management have become fat on the company’s previous successes.
Emphasis ours:
Vodafone is an attractive place to work – the world’s largest mobile company and from informal surveys we think one of most remunerative for management. For all that, its talent pool is depressingly thin.
From the outside it appears that Vodafone’s underperformers do not get fired, but put out to expensive pasture in senior central jobs without power. Not only is this a colossal waste of money, it discredits the centre and makes control – vitally important in such a disparate business – that much harder.
Outside of Italy and Spain there are few examples of smart commercial propositions launched by Vodafone. We think that Vodafone has repeatedly demonstrated a worrying lack of commercial savvy. The big examples are well known – missing the iPhone, leaving Carphone Warehouse, leaving the Aldi deal for KPN.
We think that the business, not just the investor community, needs direction from the CEO in the form of tangible goals.
So, what is to be done?
The company, says Bienenstock, should create a stronger management culture, adopt more ambitious targets, and not even think about any acquisitions until value has been created in existing purchased assets.
You have to earn the right to use investors’ funds to buy new things. Vodafone has not.
And if management doesn’t shape up, a break up should be on the cards. With Vodafone’s value subject to a conglomerate discount, radical action could be needed to realise shareholder value.
With the Company currently trading at a ~30% discount to fair value for its core assets, and a ~40% discount to the long term normalized FCF, we believe that there is enormous potential for a re-rating of the stock. You must either make the argument more compelling by creating value for equity investors with what you have today, or consider breaking up the business to realize the sum of the parts valuation.
Over to you Vittorio Colao.
Related links:
Vodafone – Lex
Vodafone reassures on merger of rivals – FT