Vodafones (LSE: VOD) growth has slowed to a crawl over the past few years. However, this could be about to change, as some City analysts are now calling for Vodafone split itself apart, in order to ignite growth.
Breaking up for growth
Breaking businesses apart to stimulategrowth is all the rage nowadays. Indeed, in low-growth, highly competitive industries, such as telecoms, its easier for smaller, individual business units to operate within separate markets.
And analysts now believe that Vodafone could adopt the same strategy in an attempt to kick-start growth.
You see, one of the key issues with Vodafone at present is its sprawling size, which is becoming a hindrance for the group. A complex corporate structure and different layers of management that overlap are actually working against the company, causing diseconomies of scale.
Even thoughVodafone has managed to keep a lid on rising costs, the companys growth has slowed to a crawl in recent years.
So, to kick-start growth there are some rumblings that the company might break itself up. The groups African and Indian divisions could be sold to private equity buyers while Liberty Global would certainly be interested in Vodafones European operations.
Easier to manage
A smaller Vodafone would certainly be easier to manage.
For example, the groups Indian operations, which were once the crown jewel of the Vodafone empire, arenow becoming extremely cumbersome and difficult to manage. Competition in the region is increasing, margins are coming under pressure and Vodafone is trying to grapple with what seems to be an endless stream of tax demands from the Indian government.
That being said, India is still one of Vodafones profit centres. Regional service revenue increased by 15% for the quarter ended 31 December 2014 on an organic basis. Earnings before interest, tax, amortization and depreciation also increased at a similarrate.
Nevertheless, while its becoming tougher to do business inIndia, the region is not Vodafones biggest problem. Europe has become the companys problem child over the past few years, and the market is waiting keenly for Vodafones 7bn Project Spring Europeannetwork upgrade to start yielding results.
In many ways, this could be the catalyst that forces Vodafone to consider a breakup. Spending on Project Spring is due to end this year and improved regional sales figures should follow suit.
However, if sales growth fails to materialize, Vodafone could be pushed to offload its European operations. Liberty Global would be more than happy to make an offer. Indeed, Liberty Global has long been considered a possible target for Vodafone and the two groups are fighting for market share within Europe.
By selling off its struggling European business, Vodafone would then be able to concentrate on its prized emerging market assets in Africa and India. In addition, exiting Europe would also help the group simplify its corporate structure, without having to undertake a complexreorganisation and sell-off high-growth assets.
Special dividend
If Vodafone sell off its European business, the company is likely to return any cash received from the deal to shareholders. So, there could be yet another special dividend windfall on the cards for investors.
But Vodafone is already a dividend champion. The company’s shares currently support a dividend yield of 4.7%, and analysts expect the yield to hit 5.1% next year. If this interests you, and you’re looking for other companies with similar yields, then you need to check out The Motley Fool’s new, free,limited edition dividend report.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.