Vodafone offloads Verizon stake for mammoth US$130 billion

Vodafone has finally confirmed the deal that has been rumoured for weeks, and expected for years — that it is selling its 45 per cent stake in Verizon Wireless.

The company is receiving US$130 billion for the stake, significantly higher than the US$100 billion it was estimated to be worth, but close to the amount thought necessary to secure Vodafone shareholder approval.

The deal is expected to be completed in the first quarter of next year – pending the usual regulatory approvals.

Vodafone is receiving US$58.9 billion in cash and US$60.2 billion in Verizon shares. Verizon has the right to increase the cash portion of the total consideration by up to US$15 billion, and to decrease the number of Verizon shares to be issued accordingly.

At completion, Vodafone shareholders are expected to receive all the Verizon shares and US$23.9 billion of cash totalling US$84 billion, representing 71 per cent of the net proceeds.

That the shareholders are receiving the Verizon shares is a surprise, as it had been expected that Vodafone would hold onto them, partly to profit from later sales, and partly to thwart any takeover by a US company.

As part of the deal, Vodafone will acquire Verizon’s 23 per cent minority interest in Vodafone Italy for US$3.5 billion, thereby securing full ownership of the Italian subsidiary.

If the deal falls apart due to problems by either of the two companies, then the two companies have onerous break-up fees ranging from US$1.55 billon to as much as US$10 billion if Verizon is unable to raise the funds for the cash component of the deal.

However, Verizon says that it has already secured US$61 billion as a bridging loan to pay for the deal.

Vodafone said that it also intends to implement a new organic investment programme, Project Spring, which will see further investments of GBP6 billion (US$9.33 billion) over the next three financial years to speed up the deployment of 4G services and boost 3G coverage.

Assuming completion of the transactions, Vodafone intends to increase the final dividend per share (post-consolidation) by eight per cent, while Verizon is lifting its dividend by 2.9 per cent.