Investors eye $130bn Vodafone windfall

VODAFONE today said it was in talks to sell its stake in US telecoms giant Verizon Wireless in a deal which could be worth up to $130 billion (£84bn), the third biggest of all time.

Vodafones announcement on its talks with Verizon came on the day it unveiled 4G coverage for 13 UK cities. Picture: Getty

Shares in Vodafone surged on the news – adding more than £8bn to its market value – as investors eyed a possible windfall special dividend from the deal.

Analysts expect the company to return much of the proceeds of any sale to shareholders rather than embarking on more acquisition activity or paying down borrowing.

It is believed that an announcement on an agreement could come as early as Monday after Vodafone confirmed the talks with Verizon Communications to sell its 45 per cent stake in their wireless joint venture.

Shares in Vodafone rose to close up 8.2 per cent, up 15.5p at a 12-year high of 204.75p, amid speculation over a payout to investors.

Charles Stanley analyst Tom Gidley-Kitchin said: “We would expect them to distribute a very large proportion of the proceeds to shareholders.”

Verizon has made no secret of its desire to gain full ownership of a network that is growing at a rapid rate and generating billions of dollars in free cashflow.

But Vodafone’s chief executive, Vittorio Colao, has bided his time, waiting for the optimal moment to sell the stake in a deal that would leave the world’s second-largest mobile operator with assets in Europe and emerging markets such as Africa, India and Turkey.

Gidley-Kitchin said it had been inevitable that Verizon would make a serious approach at some stage but pointed out: “Vodafone doesn’t have to sell, they are quite prepared to wait. I don’t think Colao is going to be bamboozled into selling at a sub-optimal price, so I think Verizon will understand they will have to pay closer to $130bn.”

The only M&A deals bigger than that were Vodafone’s $203bn takeover of Germany’ Mannesmann in 1999 and AOL’s $165bn acquisition of Time Warner the following year.

Verizon is understood to be working with several banks to raise $10bn from each to finance about $60bn of the deal.

The stake in Verizon Wireless has become increasingly valuable to Vodafone as its fortunes have waned in its core European markets.

But it has a strategy of wanting full control of its assets, and as the junior partner in Verizon Wireless, it has no control over the timing and level of dividends from the group.

Colao said in May he would stake his reputation on selling the stake at the right time and right price and would not bow to pressure to do any deal.

Verizon has been able to use the dividend as a lever to persuade Vodafone to sell. The company paid no dividends from the joint venture between 2005 and 2011, which at the time was viewed by analysts as trying to pressure Vodafone into doing a deal. But Verizon Wireless paid out a $7bn dividend to its parent companies in June, indicating that they were on better terms.

Vodafone’s announcement over the possible sale of its Verizon Wireless stake came as the firm – alongside rival O2 – launched its superfast 4G mobile phone service in the UK.

Both networks plan to have network coverage in 13 cities – including Edinburgh and Glasgow – by the end of the year, following in the wake of EE, which has offered 4G since October.