Vodafone sheds value as shareholder plans to halve stake

Shares in Vodafone, the international mobile group that now has more than 450,000 shadow Irish shareholders, fell 6 per cent yesterday when one of its largest shareholders said it was halving its stake.

Eircom investors should become Vodafone shareholders in March when the British group completes the #4.2 million (£3.3 million) takeover of Eircell. They will receive 0.9446 of a Vodafone share for every two Eircom shares they own. The cash value of the deal after yesterday's fall in Vodafone to 227 3/4p sterling was just under 170 cents per Eircom share and was reflected in the Irish group's closing price of 249 cents which was down 4.23 per cent.

When the deal was agreed before Christmas, the cash value was 184 cents. Last night's Eircom closing price values the non-mobile part of the business at 79 cents, substantially less than the #1 that eIsland has offered for the fixed line business that makes up most of the rump. Eircom has told eIsland - led by Mr Denis O'Brien - that the offer undervalues the fixed line business. Mr Peter Lynch - the newly appointed finance director of Eircom - said at the weekend that if Mr O'Brien wanted to return with a higher bid in three to six months, it would be examined.

Vodafone shares are languishing near a 20-month low after Hong Kong conglomerate Hutch ison Whampoa said it would cut its stake to 1.2 per cent from 2.3 per cent through a $2.5 billion (#2.6 billion) convertible note offering. Vodafone shares fell 14 1/2p sterling to 227 3/4p sterling, knocking £13 billion sterling (#20.5 billion) off the company's value. The Hong Kong group is one of several firms that have been left holding significant amounts of Vodafone paper following a prolonged acquisition spree by the British group. This overhang accounts for up to 10 per cent of Vodafone's equity and fears that these investors want to sell have pushed down Vodafone's share price in recent weeks.

Yesterday, Vodafone said it was acquiring a 34.5 per cent stake in Grupo Iuscacell, the largest mobile phone company in Mexico, for $973.4 million, but this deal was paid in cash. The two big shareholders in Eircom - KPN and Telia - will both receive large numbers of shares as a result of the Eircell sale which they will be able to sell 30 days after the transaction closes. KPN has a 21 per cent stake in Eircom while Telia owns 14 per cent.

The Hutchison sale caught some in the market by surprise. "It was not expected," said Mr Niklas Olausson, an analyst with Indosuez W.I. Carr in Hong Kong. "Hutchison had been indicating that a disposal was not on the cards in the near term. This is not a straight disposal. However, they are monetising the asset," he said.

A spokeswoman for Hutchison said the company was availing of an "opportunity to raise loan financing at a very favourable interest rate". "We remain confident in the future of Vodafone," said Ms Nora Young.

The Hong Kong group ended up with shares in Vodafone after a series of takeovers of mobile phone company Orange.

Ms Young said Hutchison still had a 3.47 per cent stake in Vodafone - the lower figure used by analysts excludes the shares Hutchison has tied to convertible instruments but which it still technically owns. Vodafone was aware of the move, she said.

Shares in Telia rose yesterday on news that the company had reached agreement with a rival on building a domestic Universal Mobile Telephone System network. Disappointing widespread expectations, state-controlled Telia failed in December to win one of the four licences offered in the competition arranged by Sweden's national telecoms authority, causing its share price to fall steeply.

Yesterday, Telia and rival operator NetCom, whose Tele2 mobile unit won a licence, announced a deal to set up a joint venture to build and maintain a third-generation or UMTS network.