Vodafone Accused of Insider Trading

The Dutch shareholders association, Vereniging van Effectenbezitters (VEB) says that it has asked the Amsterdam public prosecutor to investigate a claim of insider trading by Vodafone during its current bid for the remaining shares in its Dutch subsidiary Libertel.

On 13 January 2003 Vodafone announced a public bid. Initially, the Board of Executive Directors and the Supervisory Board considered the bid too low, but it was still carried through unchanged by Vodafone - without the explicit support of Libertel. The transactions in Libertel shares that have been made public, show that between 13 January 2003 and 7 February 2003 (termination of the negotiations between Vodafone and Libertel) almost 21 million Libertel shares had been additionally purchased by or on behalf of Vodafone. Subsequently, the shareholding was increased via transactions on the stock exchange, on 12 February up to 82.4% and on 26 February up to 83.5%. In the period up until 4 March - the date of publication of the offering memorandum - Vodafone bought at least another 0.3%. The intention is to acquire via the public bid - the application term for which will, for the time being, end on 27 March 2003 - at least 95% of all issued shares. After this, the listing would be terminated.

In the opinion of the VEB the Vodafone Group in the period between 13 January and 4 March acted with inside information. This insider trading probably extends to the period preceding the announcement on 13 January 2003. During this period Vodafone knew much more about Libertel than the other shareholders did. For:

• Vodafone consolidated the results of Libertel in its own annual accounts;
• Libertel has been fully integrated into Vodafone's management information system, as a result of which the operational data (user numbers) and financial data (sales, costs, development of ARPU, cash position, et cetera) are at all times known by Vodafone;
• the executive directors of Libertel are appointed on the recommendation of Vodafone;
• of the five supervisory directors of Libertel, four are (in)directly linked to Vodafone.

However, VEB says that this is only the tip of the iceberg. Examples of other (potential) sources of insider trading by Vodafone include:

• the internal transfer prices for services performed by Vodafone for Libertel and which are charged by Vodafone to Libertel accordingly;
• the sale of Vizzavi Nederland by Vodafone to Libertel;
• the "specific internal financial reports, budgets and estimates" (offering memorandum, page 20) as drawn up until 3 March 2003 by the Board of Executive Directors and the Board of Supervisory Directors of Libertel and provided to ABN Amro - Vodafone's financial advisor - in connection with the valuation of the Libertel share.

Finally, VEB says that it is possible that Vodafone, also before 22 November 2002, acted on the basis of insider trading concerning Libertel and that as a result more (legal) persons have committed (incitement to) insider trading.

It is the opinion of the VEB that on the basis of the foregoing the law has been violated. Vodafone has much more information about Libertel than it is willing to share with its co-shareholders and, according to the VEB, in this kind of situation Vodafone is to abstain from purchasing additional Libertel shares."

Posted to the site on 13th March 2003