Vodafone has moved further towards signing the third-biggest corporate deal in history, as it confirmed it is in ‘advanced’ talks with Verizon to sell its 45% stake in Verizon Wireless, the largest mobile network in the US. The sale is expected to be confirmed today.
The stake is estimated to be worth $130bn (£84bn), with around 70% of the proceeds after tax, winging its way directly to Vodafone shareholders – that is expected to be around $88bn. Somewhat unsurprisingly, shares in Vodafone leapt by 4% in early trading to 214.65p – the highest level for almost a decade.
The issue of tax is bound to be a contentious one. As we speculated last week, the chances of a deal going through hinge on Vodafone’s ability to mitigate its corporate tax bill on the sale.
Surprise surprise: it is understood the deal will go through Vodafone’s Luxembourg subsidiaries and other offshore arms. Last week the tax bill stood at an expected $30 – $40bn. It is now thought to be more like $5bn.
The sale is likely to capture the attention of HMRC, which has tussled with Vodafone over its tax bill in the past. But that won't stop pension funds, many of which are shareholders in Vodafone, cracking out the party poppers: with shareholders expected to take around $88bn, that’s a stimulus for the economy not many will complain about.
The price is to be paid in a mix of stock and shares, meaning although Vodafone will lose its American stake, it will still own shares in Verizon. Investors are happy with that: it leaves Vodafone with some exposure to Verizon Wireless, a profitable asset.
It's a triumph for Vodafone chief executive Vittorio Colao - Vodafone and Verizon have been trying to complete this deal for almost a decade. But it does leave the mobile operator without one of its best performing assets. Colao has an interesting task ahead in trying to ensure growth for the company, while its European assets remain sluggish.
The deal, if it goes through in its estimated state, will be the third largest in corporate history. Vodafone is racking up its record-breaking deals: it already holds the largest deal in history, with its $203bn hostile deal with Germany’s Mannesmann in 2000.
Some have speculated it could make Vodafone ripe for acquisition itself. American telecoms giant AT&T and Japan’s telecoms company Softbank are thought to be potential buyers. Despite its aversion for paying large UK tax bills, the loss of Vodafone to foreign buyers would be a large one for us Brits.