Latest 5.12 pm GMT Vodafone strikes agreement
But what will it do with all the money?
In what looks like a landmark decision for the global telecoms industry, directors of US mobile network operator (MNO) Verizon Wireless will meet later today (2nd September 2013) to vote on whether to acquire Vodafone’s 45 per cent stake in their joint US mobile venture. For years speculation has been rife about when and if Vodafone would yield to Verizon’s overtures, with matters complicated by the fact that the US venture has since grown into a huge cash cow for both sides, inflating any buy-out price. Capital gains tax liability is another major consideration, though under UK laws Vodafone may be spared the worst of this on the basis that it is disposing of a major asset.
Then there is the issue of what Vodafone should do with the proceeds from selling its stake in Verizon Wireless, if it happens, which could be as much as £83 billion ($130 billion).
On the one hand small investors will be clamouring for their share via a special dividend, possibly demanding that as much as 75 per cent of the proceeds are returned to them.
On the other senior Vodafone executives will want to see money earmarked for expansion – all the more so as they try to redress the new hole in the company’s income, largely through expansion into Europe and emerging markets.
As it is, Vodafone has still yet to fork out $10 billion for its June acquisition offer for German cable operator, Kabel Deutschland.
As part of the transaction, Verizon may even sell back its 23 per cent stake in Vodafone Italia, possibly worth €4 billion to the UK operator.
Either way the Verizon deal, if approved, will be the industry’s third largest ever alongside Vodafone’s $172 billion acquisition of Mannesmann AG in 1999 and AOL’s acquisition of Time Warner for $164 billion in 2000.
Throughout the weekend Vodafone directors have been meeting behind closed doors to decide the best way forward.
Any acceptance proposals will be considered in turn by Verizon Communication’s board later today, though if the deal doesn’t proceed it won’t be the first time the two sides have failed to reach accord.
Meanwhile, Vodafone’s share price has soared to an all-time high since word spread last Thursday that a buy-out was again on the cards.
* FOOTNOTE: In early London trading Vodafone’s price soared a further 4 per cent to 214 pence. But the company also put out a statement saying that, while talks with Verizon Communications were advanced, there was still “no certainty” that agreement would be reached.