Vodafone in Trouble

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Case Details:

Case Code : BSTR213
Case Length : 20 Pages
Pages Period : 2000-2006
Organization : Vodafone
Pub Date : 2006
Teaching Note : Available
Countries : UK, US and Japan
Themes : Globalization Strategies | Problems
Industry : Consumer Electronics

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Vodafone's Impairment Review Contd...

Analysts and industry observers viewed the impairment review as a sign of 'profit warning'. Analysts and Vodafone shareholders also began to blame Sarin's management style for the state of the company.

Commenting on the impairment review, Robert Grindle, analyst, Dresdner Kleinwort Wasserstein, said, "It's another incremental worsening of management expectations. It will put Sarin under more pressure. The more the share price falls, the more pressure he will be under."⁸ Some of Vodafone's largest shareholders believed that Sarin' s poor leadership was instrumental in turning Vodafone into a mere 'utility company' from the leading global mobile giant that its former CEO Chris Gent (Gent) had transformed it into. Analysts commented that the mounting pressure might force Sarin to resign as Vodafone's CEO. However, Sarin maintained that he was under no pressure and that he had the full support of Vodafone' s board members.

Early History

When the British government opened a bid for cellular licenses in 1982, Gerald Whent (Whent), then chairman of the Racal Radio Group, a subsidiary of the Racal Electronics Group⁹ (REG), convinced REG's board to bid for a cellular license. After a successful bid, Whent established the Racal Telecomms Division (RTD) in 1983 in Newbury, UK, with a view to developing and implementing an analog network in the UK.

Since the license did not permit the company to sell its network directly to the public, When set up a wholly-owned subsidiary called Vodac as the service provider of the analog network in 1984. RTD launched the first ever analog network in the UK on January 1, 1985, with a call being made from St Katherine's Dock in London to Newbury. The analog network was given the name 'Vodafone', which stood for 'voice and data services over mobile phones'. By 1988, RTD accounted for one third of REG's total profits. Also in 1988, RTD floated 20 percent of its ordinary share capital on the LSE and the New York Stock Exchange (NYSE). In 1989, the company formed Paknet, a 50-50 joint venture with Cable & Wireless¹⁰...

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8] "Vodafone in overvaluation warning," http://news.bbc.co.uk/2/hi/business/4754354.stm, February 27, 2006.

9] Racal Electronics Group (REG) was founded by Raymond Brown and Calder Cunningham in 1950. The company started out by supplying radio receivers to the Royal Navy. Gradually, it gained expertise in electronic warfare. In 2000, REG was taken over by Thomson-CSF, a major electronics and defense contractor in the UK. The merged entity then came to be known as Thales plc.

10] Tata Sons Ltd is a successor to the first trading company founded by Jamsetji Tata (the founding father of the Tata business empire). The Tata Sons Ltd. Board is made up of the chairmen or CEOs of major operating Tata Group companies, and the elected chairman of the Board of Tata Sons Ltd. is recognized as the Group Chairman. The company is based in Mumbai.