Denying Verizon Takeover Bid, Vodafone Faces Shareholder RevoltDenying Verizon Takeover Bid, Vodafone Faces Shareholder Revolt

Arun Sarin's long, hot summer continued today as U.K. wireless business Vodafone Group, the company he heads, was forced to issue a statement denying reports that it plans to acquire Verizon Communications, parent company of the No. 2 wireless carrier in the United States.

Vodafone already owns 45% of Verizon Wireless, and it has come under pressure from a group of dissident shareholders to either extract more value from the jointly owned venture or spin it off. FT Alphaville, a blog on the Financial Times Web site, reported on Monday morning that Vodafone was considering a bid to acquire Verizon for $160 billion, prompting Verizon's shares to jump more than 12% in pre-market trading.

The acquisition would create a business worth about $300 billion, but it would force together two disparate mobile-phone technologies: Like most European carriers, Vodafone uses the Global System for Mobile communications, or GSM, technology, while Verizon uses CDMA.

"Vodafone wishes to make it clear that it has no plans to make such an offer," the company said in a statement.

A native of India, a U.S. citizen, and a U.K. resident, Sarin has been the chief executive of Vodafone, the world's largest mobile phone company, since December 2002. He has come under fire recently for his compensation level (a year ago he was awarded stock options that could be worth up 735% of his base salary) and the Verizon Wireless holding.

A shareholder group known as Efficient Capital Structures has demanded that Vodafone restructure its investment in Verizon Wireless, either through a "tracking share" or the creation of a new holding company. The aim, says ECS, is to issue dividends to shareholders that represent the company's earnings growth attributable to Verizon Wireless. If Vodafone opted instead to sell its Verizon stake, the shareholders would receive the proceeds.

Efficient Capital Structures, which holds 210,000 Vodafone shares, calculates that 62% of Vodafone's earnings-per-share growth over the last three years has come from the Verizon Wireless investment. Noting that executive stock options are far more likely to vest under the current arrangement, the group alleges that Sarin and his management team are acting in their own interests rather than shareholders'.

The restructuring proposal appeared to be going nowhere until influential corporate-governance firm Glass, Lewis & Co. issued a report last week supporting ECS. Some shareholders, wrote Glass, Lewis lead analyst David Eaton, believe "that the board of directors has mismanaged a central investment, potentially for reasons that diverge from shareholder interest."

Sarin and the Vodafone board have rejected demands to alter the Verizon Wireless ownership structure.

The ECS revolt follows last year's annual general meeting, at which a significant fraction of Vodafone shareholders voted against supporting Sarin's leadership. Shares of both Vodafone and Verizon have performed well recently, however: Vodafone's stock has climbed by 70% in the last year, while Verizon's stock has leapt 43% in the same period.

Vodafone's annual meeting, where the ECS proposal will be voted on, is on July 24.