Vodafone reorg – Donovan out; Combes in; VZW in play?
9 September 2008
Highlights
- Vodafone is restructuring its Eastern Europe, Middle East, Asia-Pacific, and Affiliates (EMAPA) division on 1 January 2009, creating two new units – Central Europe/Africa Region and Asia-Pacific Region. Oddly, Middle East does not feature in either of the new names, despite the Group having an Egyptian business and setting up in Qatar. Chief Executives have yet to be confirmed for the new divisions.
- Paul Donovan, head of EMAPA, Vodafone’s number-two executive, is to leave at the end of January 2009.
- Michel Combes has been recruited as Chief Executive Officer (CEO) of the (Western) Europe division, stepping into the old shoes of now-Group CEO Vittorio Colao, starting 1 October 2008. Combes will also assume responsibility for Global Marketing, Global Technology, and Vodafone Business Services. This appears to make him Colao’s number-two. Combes, born in 1962, is a French national who has spent much of his career within France Télécom, but most recently has been CEO of the €1.6bn, private equity-backed TéléDiffusion de France (TDF Group, an acquisitive French television transmission company that has been expanding in Europe). The biography provided by Vodafone appears to highlight his executive, technical, and transformational skills, but not his mobile connections. Combes is also a member of supervisory and directors’ boards at a number of companies, including Assystem (an engineer where he was once General Manager), AtosOrigin (IT services), Europacorp, Infogrames (gaming), and Weather Investments (Orascom Telecom, Wind Italy, etc.).
- All three new CEOs will have a seat on the Group Executive Committee.
- Terry Kramer has been promoted from Group Human Resources (HR) Director to Group Strategy and Business Improvement Director. He will be “responsible for strategy development, for the initiatives aimed at productivity and efficiency gains across the Group, and the governance and coordination of the relationship with Verizon Wireless”.
- The Group’s 45% stake in Verizon Wireless (VZW), previously part of EMAPA, will now be managed directly by Vittorio Colao, Andy Halford (Group Chief Financial Officer, and previously holder of the same role at VZW), and Terry Kramer.
COMMENT: Michel Who?
Vodafone today confirmed its previously rumoured reorganisation (Vodafonewatch, passim), with the big surprise being importation of Michel Combes as Chief Executive (CEO) of the (Western) Europe division, where he succeeds now-Group CEO Vittorio Colao.
This division is challenging, due to saturation, tough competition, and regulatory diktats. By contrast, Combes’ current company, TDF, has revenue smaller than most of the individual operating companies he will now oversee – including the likes of Vodafone Portugal – and less than one-sixteenth the size of the overall Western Europe division (€26bn revenue in FY07-08), which remains highly-profitable but growth-challenged. The recent profitability and rate of growth of TDF are unknown.
Vodafone has a cadre of perhaps 40 operating company CEOs and numerous other highly experienced and proven staff it could have considered, before opting for an external search. Was there really no qualified internal candidate, or, worse, none willing to accept the job?
Questions will inevitably be asked about this choice, since Combes does not have apparent experience of running an operation anywhere close to the scale and importance of the Western Europe division. Additionally, much of his heritage is at France Télécom, which is not widely considered a telco or mobile role model. Additionally, the Group has no obvious shortage of talent, so the decision to bring in an outsider to run the firms’ cashflow engine is somewhat surprising, and may fuel the suspicion that Colao is strengthening his power base, rather than enhancing the business – behaviour analogous to the UK’s consequently embattled Prime Minister, Gordon Brown, some might conclude.
VZW in play?
Another interesting aspect of the reorganisation is the decision to shift the Group’s £40bn (€49bn)-plus stake in Verizon Wireless (VZW) out of the EMAPA operational division and into the corporate centre. Colao has already shown signs of taking a more pragmatic view to this holding, leading to the impression that the stake might now be considered in play. Vodafone currently has a market capitalisation of around £86bn, but Vodafonewatch has recently estimated that the Group’s investments (VZW, China Mobile, SFR, Vodacom, etc.) alone could currently be worth as much as £60bn. Even factoring in debt, this seems to put a value of not much more than £40bn on Vodafone’s core, fully owned operating companies.
Selling the VZW stake might provide the financial firepower to go on the M&A rampage, for example, taking control of Vodacom and SFR (Combes, as a well-connected Frenchman, could be handy here), making a play for a Middle East and Africa group (such as Zain), increasing the stake in China Mobile, and indulging in bolt-on acquisitions across emerging markets, while still leaving room to trim debt and pamper shareholders by returning cash.
Vodafonewatch would not be entirely surprised to learn that the sale of the VZW stake is already effectively a done deal, with both Vodafone and Verizon Communications recently seeming to gently float related trial balloons past investors. However, a deal is likely to be complicated by tax considerations, and would probably also see Vodafone secure full ownership of Vodafone Italy (where Verizon Communications is an entrenched minority shareholder, and which Colao once ran), as well as reviving analysts’ interest in Vodafone’s strategy for North (and South) America. Conversely, Vodafone might be preparing to take a run at Verizon Communications, but this feels very unlikely in the current market climate.
Is Colao showing strength…or weakness
Vodafonewatch remains unclear as to what Colao is up to – does the reorganisation represent weakness (a controlling, unconfident manager creating a smaller, more malleable business), business as usual (perhaps with a greater ‘enterprise’ mix and tighter operational control), or an ambitious change of direction (clearing the decks ahead of a new era of M&A activity)?
Restructuring EMAPA and splitting out VZW clearly have some logic as the division can at times look geographically extended and complicated, although retaining a unified emerging markets division currently seems to play well to investors.
The departure of Donovan might also be considered inevitable and unfortunate, since he was until recently Colao’s peer and deemed a fairly strong rival for the top job, but it might alternatively mark a more worrying turf war and strategic disagreement. It will be interesting to see who are appointed as his successors.
The arrival of Michel Combes looks odd, since he appears to be seeing a massive career upgrade, and it also seems strange to bring in an outsider – all the more so since he is immediately gaining control not just of the critical Western Europe division, but also for the central and strategic marketing, technology, and enterprise functions. There seems a real danger that this could all be taken as a grave insult (and threat) to existing executives, or the start of a wave of top staff changes. Nevertheless, Combes is a relatively unknown entity whose limited biography does hold promise, and he has presumably been very carefully selected, so deserves the opportunity to demonstrate his capabilities. His arrival could also mark increased emphasis on enterprise customers (along with profitability and M&A), including the possible intent to break the shareholding deadlock at French operator SFR and secure full control of Vodafone Italy.
Terry Kramer is also being put on a pedestal, seemingly as a key component of a new controlling executive cabal, but he does have an impressive and relevant pedigree, with a background that goes far beyond his current HR remit, and, apart from his time near the top of Vodafone, includes direct exposure to international mobile markets (including the US), as well as executive leadership and management consulting.
Investors, analysts and other observers did not seem immediately to take a greatly positive or negative view of the reorganisation, perhaps indicating that they share Vodafonewatch’s difficulty in understanding the wider implications of the changes.
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