Has Vodafone finally got the right Idea in India?
After taking a £5.4bn hit from a rival, the telecoms group’s merger plan could make it joint owner of the market’s leading player
“Any company that gives stuff away is not a company, it is a charity,” grumbled Vittorio Colao, the chief executive of Vodafone, last November when a competitor in India started offering free mobile phone services, thereby putting a €6.3bn (£5.4bn) dent in the value of the provider’s local business. Vodafone shareholders, who hadn’t been terribly enthusiastic about India for a while, braced themselves for further instalments in a tale of disappointed dreams.
But here comes the fightback – or, rather, a defensive deal designed to ensure Vodafone can stay the course in India. Vodafone, No 2 in the market, has opened negotiations to merge its operations with those of the third-largest operator, Idea Cellular. The combined business would be the market leader in India with an astonishing 380 million customers.
Is that sufficient protection against the aggressive pricing tactics of Reliance Jio, owned by the billionaire Mukesh Ambani? It ought to be – eventually. Jio is very definitely a company but Colao was correct that even wealthy tycoons do not authorise $25bn of investment unless they intend to make a commercial return. Jio has acquired 70 million customers via its cut-price and free deals; the moment at which it tries to make some money from them can’t be delayed indefinitely.
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In theory, then, a Vodafone-Idea operation ought to be well positioned when the dust settles. But, before Vodafone shareholders rediscover their taste for India, they will want to see the terms of any deal with Idea. The Indian company’s announcement said the two partners would have equal rights in the merged entity. But Vodafone is the larger player. If equality is to be achieved via an equalisation payment, it needs to be transparent and fair. If not, Colao, in his search for safety, could himself be accused of being too charitable.
But, if he can clear that hurdle, Colao would be entitled to encourage his shareholders to be more cheerful about India. The market is huge and all the mobile operators benefit from an underpowered fixed-line network. Owning a half-share in the No 1 player is not a bad place to be if you’re prepared to take a long-term view.
CMA will make a meal of Tesco’s Booker deal
On the second trading day, investors finally understood that Tesco’s plan to buy Booker for £3.7bn won’t be a picnic. The inevitable competition inquiry could be long and its outcome is anybody’s guess. Both companies’ share prices fell – Tesco’s by 4%, reversing half of Friday’s gain.
Clive Black, an analyst at Shore Capital, has coined the term “postcode analysis constipation” to describe an ailment that could afflict the Competition and Markets Authority in the months ahead. The regulator has been a regular sufferer in the past with its phenomenally detailed on-the-ground studies of competition implications. With Tesco and Booker, the postcode pain threatens to be excruciating.
The big idea in the takeover is that thousands of independent Premier, Londis and Budgens convenience stores – currently supplied by Booker – will be serviced in future by the company that owns thousands of competing Tesco Metros, Expresses and One-Stop convenience outlets plus the UK’s biggest traditional supermarket business. That arrangement would definitely be unusual. Would it also be anti-competitive?
Supplying competing outlets is not the same as owning them; all those independent Premier, Londis and Budgens shopkeepers would still be free to take their business elsewhere. But it is inevitable that some Tesco-heavy postcodes will become more so if one counts the to-be-supplied convenience stores.
But, if that’s deemed to be against consumers’ interests, how to unpick the worst examples of local dominance? What if all those Booker independent shopkeepers accept chief executive Charles Wilson’s line that Tesco can sell them better quality fruit’n’veg at better prices? Would it be fair to declare that only some of the shopkeepers can join the party?
There is a long way to go before such decisions become relevant. But already one can understand why Richard Cousins, the dissenting director on Tesco’s board, quit. Cousins thought Tesco needed to simplify its business, not make it more complicated by buying Booker. He had wider factors in mind than just the competition inquiry. But, once the CMA gets stuck in, complication is the way to bet.
Ex-FCA chief’s Standard Chartered role is no big deal
Tracey McDermott, formerly the enforcement chief and then acting head of the Financial Conduct Authority, is to join Standard Chartered, one of the banks she used to help regulate. She’s done the appropriate spell of gardening leave, the FSA has imposed rules of engagement on Standard Chartered and McDermott is entitled to seek new employment. All the same, many will be dispirited to see the revolving door between regulators and banks take another spin. But we should probably get over such squeamishness. If it is OK for the former chancellor George Osborne to earn £200,000 a year advising the fund manager BlackRock while remaining an MP, McDermott’s move barely merits a footnote.
Source: The Guardian