BREAKINGVIEWS - Vodafone strength is mixed blessing for new chair

Thu Feb 3, 2011 10:18am IST

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-- The author is a Reuters Breakingviews columnist. The opinions expressed are her own --

By Una Galani

LONDON (Reuters Breakingviews) - Vodafone's strong share price is a mixed blessing for Gerard Kleisterlee. The outgoing boss of Dutch electronics group Philips takes the chairmanship of the telecom giant just as its shares near a high last enjoyed in 2007, and when concerns about its sprawling portfolio are already being addressed.

The question is how German-born Kleisterlee can help the board drive even more value for shareholders.

Kleisterlee's appointment is unlikely to herald a major strategy shift for Vodafone despite the huge transformation he led during his decade at the top of Philips. Under current chairman, John Bond, and amid pressure from activist shareholders following a wave of write-downs, Vodafone has stopped buying and recently starting selling.

The strategy to dispose of minority interests is the right one for the 148 billion pound ($239 billion) group.

Since the middle of last year, Vodafone has already sold its 3.2 percent stake in China Mobile for $6.6 billion and debt instruments in Japanese operator SoftBank for 3.1 billion pounds.

Investors expect that will soon be followed by a disposal of its 44 percent stake in French operator SFR to partner Vivendi which could be worth eight billion pounds and its interest in Poland.

With no strategy to ditch or balance sheet to kitchen-sink, Kleisterlee will have to work hard to make his mark. His first test will be ensuring that Vodafone secures a good price for assets that are already on the block.

The knottier task is how extract value from Vodafone's lucrative U.S. joint venture, Verizon Wireless -- either by ensuring its partner resumes dividend payments in 2012 as widely expected, or finding another solution.

Once the tidy-up is done, the big strategic question will be how Vodafone maximizes the growth potential of data traffic.

Investors have been keen to see a new chairman at Vodafone, blaming its outgoing one for destroying value. The boardroom wasn't always the most harmonious place either, although it has been a while since the last spat.

But under Bond's five-year tenure, Vodafone has generated a total shareholder return of 94 percent, according to Datastream, equivalent to an annual return of 14 percent.

Global rivals Telefonica and Deutsche Telekom have performed less well over the same period. That suggests Bond deserves a little bit more credit and that Kleisterlee will have his work cut out to achieve the same.

CONTEXT NEWS

-- Vodafone named outgoing Philips chief executive Gerard Kleisterlee as its new chairman, succeeding John Bond.

-- German-born Kleisterlee has spent his entire career at the Dutch lighting, healthcare and consumer electronics group after joining the group in 1974.

-- More than 6 percent of Vodafone shareholders voted against the re-election of Bond at the company's last annual general meeting holding him responsible for group's acquisition strategy.

-- Kleisterlee will replace Bond on April 1, 2011. Bond became chairman of Vodafone in July 2006.

(Editing by Chris Hughes and David Evans)

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