With the extra payment of €508,000 (£400,000) to the executive directors of Eircom, not disclosed in the Valentia offer document, it is understandable that the spotlight highlighted these payments. Although not agreed until after the document was published, they should have been disclosed if transparency is to mean anything.
But that is history and does not concern the former Eircom shareholders in financial terms. What does concern them, is how Vodafone, the world's largest mobile phone company, performs.
Incredibly, less than 5 per cent of the 480,000 Irish shareholders who got Vodafone shares following the sale of Eircell sold these shares, a spokesman for Vodafone has revealed. That means there are now more than 460,000 Irish investors holding Vodafone shares and that does not include those who own Vodafone shares unconnected with Eircom.
So what future have they? Last May when they had to decide on the Vodafone offer, many British and US brokers were recommending a purchase of Vodafone shares. At that time the shares were trading at around 200p sterling. They subsequently fell to a low of 118p on September 12th before recovering to around 190p.
Had the bulk of the fall occurred in the immediate aftermath of September 11th, the brokers could be forgiven. But virtually all of the fall took place between May and August as scepticism about the IT sector and third-generation (3G) networks permeated the market.
Brokers continue to be optimistic about the share price but can they be trusted?
The May to August shake out reflected a further reassessment of the over-valued IT sector. There is now a more realistic assessment of the industry players. The question is: which companies are better placed to take advantage of the growing international wireless telecoms services sector?
Vodafone looms very large. It should be viewed under three main headings - financial base, what it is doing now and what its prospects are.
It has one of the highest credit ratings in the sector, reflecting its dominant position and strong balance sheet. Long-term debt amounted to just 6.8 per cent of capital at the end of its last financial year to March 31st, 2001. That gives Vodafone the cutting edge over competitors such as BT and AT&T, which have huge borrowings.
Vodafone has been criticised for pushing up the ante for 3G licences. But, ironically, this has been responsible for some of the big players' financial problems but not for Vodafone, which has funded acquisitions through shares and not cash.
The latest Vodafone results - six months to September 30th, 2001 - show a rise in revenue from £7 billion to £8.9 billion and an increase in operating loss from £3.3 billion to £7.8 billion. However, the group had to contend with a goodwill write off of £6.7 million and exceptional charges of £4.5 million.
There was an increase in the underlying earnings per share from 1.54p to 2.51p. Importantly for Vodafone shareholders, there was a rise in the operating cashflow per share from 3.18p to 5.37p, which allowed an increase in the interim dividend per share from 0.6880p to 0.7224p. The annual dividend yield amounts to 0.887 per cent, a better return for small investors than from many banks!
Vodafone seems to be doing the right things. Up to recently, it appeared prepared to acquire almost anything in sight. While still expanding by acquisition, it is also consolidating what it has.
In the future, as the largest player, it is set to dominate the international market. Its move to control Japan Telecom, Japan's third-largest carrier, brought it into direct competition with NTT DoCoMo - Japan's top mobile operator and its main international competitor.
This global partnering will continue and, at the end of the day, only a handful will have a meaningful presence in the market.
Benefits from economies of scale are emerging and the push to increase growth in average usage per subscriber is continuing. With many of Vodafone's markets nearing saturation penetration levels, the company is focusing on reducing costs and increasing revenue per subscriber.
There are, of course, many uncertainties over the industry's future and direction. New technology is fraught with unexpected problems. Will Vodafone be able to convince the market to upgrade for new services? And this Christmas, Santa's sack is unlikely to be bulging with new mobiles.
Nevertheless, Vodafone should see continued growth in revenue, higher margins and continued strong cashflow. Its merger reserves, reflecting the premium paid on acquisitions, amounts to a substantial £99 billion but it is the company's policy to continue to reduce intangible assets.
Vodafone is a go-go company but don't expect substantial short-term gains. Vodafone is more for the longer haul. Its shares are traded on the London Stock Exchange, the Frankfurt Stock Exchange, and in the form of American Depositary Shares (ADSs) - each ADS equals 10 ordinary shares - on the New York Exchange.
On the US market, the shares fell from $60 in March 2000 to $18 in August 2001. They have since been on an upper trend and were traded at around $27 this week. US brokers have set a fair value of $30 plus.
An investor spending $1,000 on Vodafone shares five years ago now has an investment worth about $3,100. Don't expect a repeat but having Vodafone shares is a far better prospect than being stuck with the old Eircom shares.
bmurdoch@irish-times.ie
Cool-headed strategist or crisis manager?: page 5
