Vodafone Group's Lessons for BP

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LONDON -- On the face of it, there's little similarity between mobile operator Vodafone (LSE: VOD  ) (NASDAQ: VOD  ) and oil major BP (LSE: BP  ) (NYSE: BP  ) . But they have one significant feature in common: Both have a substantial amount of their value tied up in minority interests over which they do not have control. So what lessons from Vodafone's 45% share of U.S. joint venture Verizon Wireless might there be for BP's new 20% interest in Russian state-owned oil company Rosneft?

Accidental value
Pundits have put the value of Vodafone's stake in Verizon Wireless (VW) at upward of 100 billion pounds, well more than half of the U.K. company's total market cap. It's truly the jewel in Vodafone's crown, though somewhat accidentally. Vodafone acquired a hotchpotch of joint-venture interests during its go-go growth phase under Sir Christopher Gent, and current CEO Vittorio Colao earned plaudits for rationalizing the sprawling empire. His decision to keep the stake in VW might prove to be the best of his tenure.

Dividends from VW have funded Vodafone's payouts, and its share price is riding high on expectation that Verizon Communications will buy Vodafone out. But for several years Vodafone was starved of cash from the U.S. as Verizon wanted to reinvest profits in the joint venture. Holding back future payouts is potentially a lever that Verizon still has.

Out of the frying pan...
BP has swapped its 50% share in TNK-BP for just under 20% of Rosneft, the Russian state-owned oil company that produces more oil than Exxon, together with a hefty slug of cash.

The TNK-BP venture proved hugely successful -- in nine years, BP got back around $50 billion from an $8 billion investment. But the relationship was fraught, not least for BP's CEO who was forced to leave Russia for his own safety. It was a telling illustration that the rules of the game in Russia are different from the West.

Rosneft is a safe-haven partner, providing the ultimate Russian-style Krysha, or protection, a state-owned company run by a CEO close to president Vladimir Putin. It should open up unique possibilities for BP to grow its reserves, and it will surely be a useful partner for Rosneft. But with just 20% of a state-owned company, BP will be in a weak position if it falls out of favor.

Make or break
Verizon Wireless and TNK-BP both demonstrate that the make-or-break aspect of these big joint ventures is at the exit stage -- and that's a long way away yet for BP's stake in Rosneft.

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