CAPITAL STRUCTURE

Capital Structure



Capital Structure

Introduction

“Capital structure choice of foreign affiliates is particularly important for multinationals because the capital markets differ among countries with respect to the degree of development” Desai, Foley and Hines (2003). A multinational firm should maximize its consolidated firm value under such difference. “In particular, it should raise necessary capital in a country where capital cost is low, and optimally allocate the fund to the firms that provide it with the highest value” (Harris, M., Artur, R., 1991). To do so, the multinational should centralise their financing decisions, with creating and maintaining well-functioning capital markets.  Desai (2000) examines the effect of tax structure difference and legal regimes on the capital structure choice and interest costs of the affiliates of UK. multinationals. As an extension of Desai (2000), Desai, Foley and Hines (2003) further analyse the determinants of capital structures for foreign affiliates of UK multinationals using affiliate-level data.

 

Company Background

 In 1982, Vodafone, then a subsidiary of Racal Electronics bid for a private sector UK cellular licence. In 1985, Vodafone hosted the first ever mobile call in the UK - it has continued to innovate ever since. Vodafone is the largest mobile telecommunications network company in the world today. It has acquisitions and participations in mobile companies in 28 countries across five continents. In June 2002, Vodafone had over 103 million proportionate customers worldwide. By market capitalization, Vodafone Group plc is one of the largest companies in Europe.

The group's principal activity is the provision of mobile telecommunications services and products and operates in fixed line telecommunications business. Vodafone has tried to retain its leadership by continually providing customers with better value, better products and better service. It innovates constantly and works globally. Vodafone's global strategy embraces voice, data and Internet-based services, and focuses on satisfying customers' needs. Vodafone pursued geographic expansion through bidding for licences, acquisitions and commercial alliances wherever this can be shown to add to shareholder and customer value. Vodafone also has understood significantly to broaden its area of expertise. It has invested large amounts in new research and development and go beyond the mobile communication arena. It has pioneered new services in Internet and Data arena in the last two years.

Vodafone Group public limited company has acquired companies during each of the three previous years. The company purchased 34.5% of Grupo Lusacell (Mexico), Eircell, increased holding in Japan Telecom Co Ltd. to 66.7%, increased holding in J-Phone To 69.7 & (Sold interest in J-Phone (Japan) in fiscal year 2002). This follows acquisition of 91.6% of Airtel Movil Sa, 25% of Swisscom Mobile Sa and 97.79% of Mobile Communications Holdings Ltd. (Australia) in fiscal year 2001. Vodafone Group public limited company also acquired Airtouch Communications, Inc. (USA) and 92.63 of Mannesmann AG (Germany) in fiscal year 2000 and 25% of Swisscom Mobile (Sold 50% + 2 Shares in Atecs Mannesmann and Tele.Ring) in 2001. In the most recent market news, Vodafone, which owns 15 per cent of Cegetel, agreed to buy out fellow shareholders SBC and BT Group for ...