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Vodafone in talks to sell Japanese unit to Softbank

Written by: Staff

TOKYO/LONDON, Mar 4 (Reuters) Vodafone Group Plc is in talks to sell a controlling stake in its struggling Japanese unit to Softbank Corp., giving the UK group's battered shares a lift on Friday and its embattled CEO Arun Sarin some respite.

Sources close to the matter said the deal would be valued significantly higher than the 1 trillion yen (.6 billion) figure which other sources said the two companies had discussed over a year ago. The unit's book value is about 2 trillion yen.

The third-ranked Vodafone KK business has been the symbol of much of the British-based group's woes and analysts said any decision to sell the operation would ease some of the pressure on Vodafone to exit the United States.

Vodafone, the world's largest mobile operator by sales, said on Friday the talks with the Internet communications conglomerate may or may not lead to a deal and a further announcement would be made in due course.

The sources said the two firms were in the final stages of talks and a deal could be reached this month.

Softbank declined to comment.

Shares of Vodafone leapt as much 10 per cent on the news. The shares, which have underperformed the pan-European telecoms index by some 3 per cent this year, closed 8.5 per cent higher at 121-1/2 pence.

''I'm surprised ... it's happening so early (in the Japanese turnaround). It runs the risk that it won't get a decent value for it, but it may well be that Softbank have come to Vodafone, in which case maybe they can talk sensibly on price,'' said Williams De Broe analyst Darren Ward.

Ward put a price tag of between 8 billion pounds (.0 billion) and 9 billion on the entire 97.7 per cent stake.

FUTURE TURNAROUND Dresdner Kleinwort Wasserstein analyst Robert Grindle said Vodafone could also decide to sell only a majority stake to Softbank, retaining a small stake to benefit from a future turnaround of the business.

''I think it's a hugely positive signal. This will relieve some of the pressure on them to get out of the U.S.,'' said one Vodafone investor, who asked not to be identified.

Some investors have called upon the group to sell its 45 per cent stake in Verizon Wireless, its joint venture in the United States with Verizon Communications, and return the cash to shareholders.

Vodafone KK has been struggling to recover from a tumultuous few years in which sales of its third-generation (3G) phones fell flat, its leadership changed twice within a year, and it suffered an industry-record monthly loss of customers.

But Chief Executive Arun Sarin had repeatedly resisted pressure from investors to exit Japan, calling it a strategic asset and stressed the need to be present in the world's most advanced wireless market.

However, he has not been helped by a slowdown in revenues growth in the group's core European markets. Earlier this week, Vodafone said the goodwill value of its assets could be impaired by up to 28 billion pounds, blaming slowing revenue growth.

''Sarin has come under even more pressure to do something about either (or both) of the company's positions in Japan and the U.S., so much so that without some form of positive action there are those that have said that his position would become untenable,'' said Robin Hearn, principal analyst at Ovum.

Vodafone's share price was around 118 pence at the end of July 2003 when Sarin succeeded Christopher Gent, but had declined below that level despite the company returning billions of pounds to investors in dividends and share buybacks.

Vodafone is returning 9.3 billion pounds in 2005/06.

The underperforming Japanese unit has weighed on the group's shares for some time. A warning about weaker margins at the unit was the prime factor behind a sharp drop in the group's shares in November.

PRE-EMINENT IN JAPAN Softbank, Japan's largest broadband Internet provider, has been setting its sights on Japan's billion mobile market for years as it aims to become a pre-eminent communications company, providing everything from broadband, mobile and Internet services and content.

It was awarded a mobile licence in the autumn to start a new service but the acquisition of Vodafone KK would accelerate its efforts to become a major player in Japan's mobile market.

Softbank Chief Executive Masayoshi Son, who has criticised the high prices that incumbent mobile operators charge, has pledged to offer a cheap mobile service affordable to everyone.

The two companies had been reported to be in acquisition talks more than a year ago, but sources said the two sides had disagreed on price.

In the meantime, Vodafone sent former UK chief Bill Morrow back to Japan to turn the unit around.

The company has been on a slow recovery since then but industry sources said the company was still having problems meeting the needs of a demanding market while staying within the boundaries of its global strategy.


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