By Paul Sonne And Dana Cimilluca
LONDON—Vodafone Group /zigman2/quotes/202862751/composite VOD +1.88% PLC's effort to streamline its sprawling global empire reached a high point with its deal to sell a minority stake in a French telecommunications operator. Now, increasing attention will focus on what to do with the assets that remain, in particular Vodafone's 45% stake in U.S. cellphone company Verizon Wireless.
Vodafone on Sunday said it would sell its 44% stake in France's SFR to majority owner Vivendi /zigman2/quotes/202179234/delayed FR:VIV -0.46% SA for $11.3 billion. It was the latest in a string of such deals, in which Vodafone has unloaded interests in China Mobile Ltd. for £4.3 billion ($6.9 billion) and Japanese telecom provider SoftBank /zigman2/quotes/207303954/delayed JP:9984 -0.40% Corp. for $5 billion. The U.K. company is expected to sell other minority holdings, including a stake in Poland's Polkomtel SA, though none of the deals would be as big as the SFR sale.
Investors have cheered the moves by Vodafone Chief Executive Vittorio Colao , who has sent a clear signal in recent months that he is serious about tidying up the company's portfolio. Vodafone shares are up 73% from a late 2008 low.
But even though analysts generally saw the SFR deal as a good one for Vodafone, the U.K. company's shares barely budged Monday, a signal that investors could be looking beyond the divestiture program to other issues that Mr. Colao must navigate. The stock fell 0.1% to 178.85 pence ($2.88) in London trading on Monday. That left the stock still down sharply from its 2000 high of nearly 450 pence.
At the top of the to-do list is Verizon Wireless. The biggest mobile provider in the U.S. is 55%-owned by Verizon Communications /zigman2/quotes/204980236/composite VZ -0.66% Inc., 45% by Vodafone, and hasn't paid a dividend in over five years as it pays down debt. The wireless carrier is expected to be debt free by next year, and Vodafone has signaled that instead of selling its stake or merging with Verizon Communications, the U.K. company intends to wait for the wireless carrier to resume paying dividends.
Sanford C. Bernstein & Co. said Monday it expected Vodafone to make an agreement with Verizon over the resumption of dividend payments later this year and potentially get full control of Vodafone Italia in the same negotiation.
Vodafone owns 77% of the Italian carrier, also known as Omnitel, and Verizon Communications holds the rest.
Beyond a resolution to the minority holdings and Verizon Wireless dividends, investors will look to see whether Vodafone can return to revenue growth for services in Europe. Though data revenue has been increasing, that hasn't made up for the persistent decline in voice revenue, a common problem for major mobile operators.
"The issues around portfolio rationalization do disguise one issue that management faces, which is that European service revenue is still not positive," said Jerry Dellis , an analyst at Jefferies International Ltd. "That's one of the keys to ultimately rerating the stock."
After many years of planting flags across the globe in a major expansion, Vodafone is looking to concentrate on its existing markets in Europe, India and sub-Saharan Africa by stepping up operating performance and expanding into nonmobile services such as fixed lines or television. It also will have to make substantial future investments in wireless spectrum and networks.