Vodafone’s $130bn deal

Mobile-phone giant Vodafone has sold its stake in Verizon - the biggest deal for a decade.

Vodafone has sold its stake in Verizon Wireless for $130bn (£84bn). In the world's biggest deal for a decade and the largest since Vodafone's $172bn acquisition of Germany's Mannesmann the mobile giant disposed of its 45% holding in the US mobile network to joint venture partner Verizon Communications. Vodafone will return £54.3bn to shareholders in one of the biggest ever payouts from a corporate asset sale. Shareholders will receive 112p a share in the first quarter of 2014 in cash or shares. Vodafone will use the remaining funds to invest in its network and pay off debts.

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Despite criticism from Margaret Hodge, the chair of the Commons Public Accounts Committee, the transaction will not be liable for UK tax. Vodafone shares rose 9% on the initial bid talk.

What the commentators said

From Vodafone's point of view, "it is hard to quarrel" with the price, said Lex in the FT. It puts an enterprise value of 8.5 times 2013 forecast earnings on Verizon Wireless. That's "lofty" for a non-controlling stake that has not always paid dividends. Net of tax, the stake has been sold for a very healthy 166p per Vodafone share.

But what now? Vodafone aims to focus on emerging markets and on switching from selling mobile-only packages to bundled packages with its Kabel Deutschland deal, but there is "more to do". Vodafone could itself become a bid target, "although its scale limits" likely offerers. But the big task is "showing that the deal will pay long-term".

More big deals are unlikely to be on the cards, said John Jannarone and Rene Schultes in the Wall Street Journal. The benefits of "building scale through mergers and acquisitions may be limited". Customers don't change carriers overnight and owning an Italian cable operator and one in Germany won't provide new negotiating leverage on content purchases. "Bite-size" acquisitions are possible, but AT&T, which has flagged an interest in wireless assets, could swoop on Vodafone itself.

Meanwhile, Vodafone's current share-price multiple of 4.6 times earnings before tax, depreciation and amortisation (ebitda), versus a sector average of 5.3, suggests investors fear it could "misspend" the Verizon cash. (For our take on what you should do now if you're a Vodafone shareholder, click here.)



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