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Vodafone Shareholders Back Board, Reject Verizon Spin Off

An overwhelming majority of Vodafone Group shareholders have backed Chief Executive Arun Sarin's U.S. strategy and rejected calls by a rebel investor to release billions of pounds to shareholders.

Vodafone , the world's second-largest cell phone group by customers, said on Tuesday more than 93% of shareholders had rejected resolutions from activist investor Efficient Capital Structures (ECS) at its annual shareholder meeting (AGM) in a proxy vote.

ECS, which owns just 0.0004% of Vodafone, had added four resolutions to Vodafone's AGM partly to call for the company to spin off its 45% owned U.S. asset Verizon Wireless into a separately-listed company and issue 34 billion pounds ($70 billion) worth of bonds.

Vodafone said 4.6% of investors who voted ahead of the meeting had approved ECS's calls to spin off the Verizon Wireless holding and 3.15% had backed the rebels' calls to pile debt onto Vodafone's "under-utilized" balance sheet.

But shareholders at the AGM lambasted ECS, which is backed by John Mayo, the former chief-executive designate of telecoms equipment group Marconi. Mayo resigned in 2001 after a crushing profit warning wiped 3.5 billion pounds off Marconi's value.

"I think all of us think he (Mayo) is wasting your time and that of the other directors," one small shareholder told the board. "He is distracting your attention...I deplore what he is doing and give you my full backing."

Rebels Expect Vodafone Action

ECS, however, vowed that Vodafone would face a backlash if it failed to address shareholder concerns in the next 12 months.

"This wasn't about the votes but about action from the company," ECS Chairman Glenn Cooper told Reuters on the sidelines of the AGM. "Now we're convinced that Vodafone will take action about Verizon (Wireless)."

"I'd be very surprised if we have the same debate the same time next year," he added. "If within that timeframe there is no action, the board will face an investor revolt and an EGM (extraordinary general meeting)."

Some investors are frustrated that the value of Verizon Wireless, which is controlled by U.S. telecoms heavyweight Verizon Communications , is not reflected in Vodafone's share price and that the business is not expected to reinstate dividend payments for another two years.

But Vodafone's Chairman John Bond reiterated the company was examining all options, noting that the Verizon Wireless stake was now valued by analysts at $54 billion -- about 40% more than last year -- and contributed well over 20% of underlying operating profit.

Bond and CEO Sarin would not say whether Vodafone would exercise a put option and sell part of its stake by a deadline of August 9. Under the option, Vodafone could sell up to $10 billion worth of its stake.

Some analysts have speculated that Vodafone could sell up to $7.5 billion of its stake on a tax-deferred basis, to lock in a tax holiday benefit that would otherwise expire.

Bond also noted that ECS's demands to issue bonds would push debt to nearly 58 billion pounds, leading to the company becoming a sub-investment grade borrower, reducing free cashflow and constraining financial flexibility.

Just over 88% of shareholders in the proxy vote also approved Vodafone's executive pay package, which had drawn fire from some investors for relaxing performance targets.

Vodafone shares traded 1.74% lower at 157.8 pence, in line with the broader telecoms market.

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