Why a £4bn share buyback is uninspiring

IF Steve Jobs were to announce plans to return Apple’s £50bn cash pile in a share buyback tomorrow, there would be an almighty outcry among some investors. If, as many believe, Apple has the Midas touch then shareholders would be better served by more investment and acquisitions. It all boils down to one question: who can spend the money more effectively – Jobs or investors themselves?

Shareholders in Vodafone are facing a similar quandary, after the mobile giant announced plans to return £4bn of the proceeds from the £7bn sale of its SFR stake. The buyback comes hot on the heels of a £2.8bn repurchase programme, funded by the sale last year of its China Mobile stake and securities in Japan’s Softbank. Next on the block is Vodafone’s holding in Polkomtel, which could raise a further £1bn.

Now, Vodafone is no Apple – but there is still something quite defeatist about selling out of places like China and Poland, countries that other firms are desperate to enter. Surely a titan like Vodafone should be conquering these markets rather than exiting them.

Vittorio Colao’s reasoning is simple: he has no time for minority stakes over which he has little or no control. That’s all well and good, but we’d still like to see him find a more imaginative use for some of that cash. The dividend will grow by seven per cent for the next couple of years, and investors are swimming in buybacks.

Now is the time for a bold play on Vodafone’s future, like a big investment in data capacity or a new fixed line network that could make Vodafone Britain’s first “total comms” provider – the real inheritor to the old British Telecom’s legacy. Surely there must be a more exciting future than this.

david.crow@cityam.com