Vodafone and Verizon – our guide to the deal of the decade

3rd September 2013

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After hogging the headlines for the past week, it is looking even more likely that Vodafone investors could be set for a windfall as it looks to sells it 45% stake in Verizon Wireless to Verizon Communications.

Investors are hoping for a huge payout, as reported in Mindful Money last week. But the deal could have big implications for those holding Vodafone stock long term, for the UK economy and of course for Verizon too. We look at what you need to know.

1)      Vodafone shareholders are in for a payout collectively of £54bn as the firm’s announcement to the London Stock Exchange outlines.

2)      The deal is the third largest in corporate history. US giant Verizon Communications is buying out Vodafone’s 45% in Verizon Wireless for $130bn or £85bn as the BBC reports. This deal comes in behind the AOL Time Warner merger, a deal widely credited with bursting the Telecom, Media and Technology bubble and Vodafone’s own purchase of German mobile phone operator Mannesmann. But this is different. This isn’t a merger but a divorce after 14 years of sometimes unhappy marriage as  the Economist puts it.

3)      Vodafone may pay no tax on the deal. The Daily Mail reports that despite the huge amount of money generated, Vodafone will not pay tax on the deal although investors may have too depending of course on the tax wrapper they hold their investment in. The Mail blames a change in regulations by Gordon Brown that allowed firms which owned more than 10% of another firm not to have to pay tax when they sold it.

4) Which UK mutual funds stand to benefit. The following funds have the largest exposure to Vodafone.*

Fund %
Legal & General Ethical R Inc

9.68

Scottish Widows UK All Share Tracker I Acc

9.63

Fidelity Funds – Global Telecoms A-GBP

9.40

RWC Income Opportunities A GBP

8.35

UBS UK Equity Income A Net Acc

7.44

Waverton UK A GBP

7.38

JPM UK Managed Equity A Acc

6.64

Elite Charteris Premium Income R Inc

6.61

Standard Life Inv UK Equity High Income Ret Acc

6.61

PSigma UK Growth Inc

6.58

*Source: Hargreaves Lansdown

5) Is Vodafone’s status as a reliable dividend paying going to be damaged? Well prior to the deal, the Telegraph suggested that the deal could represent short term gain but long term pain for investors. Vodafone is a reliable payer of dividends which has at least been partly facilitated by earnings from its US holdings. Justin Cooper, chief executive of Capita Registrars warns that there could be a change in strategy and the Telegraph says that with a smaller business, Vodafone may be less generous.

6) Will it provoke other deals? Well Broadband TV News reports on speculation by analysts at Macquarie that Vodafone could use its cash pile to buy European cable operator Liberty Global. Of course Microsoft has now swooped for Nokia’s handsets business for a ‘mere’ $7.2bn as the New York Times reports.

7) Could it boost the UK economy? The deal is of such a spectacular size that it could boost the UK economy as the Huffington Post contends.

8) Does the deal make sense of Verizon? The Wall Street Journal has an excellent analysis on the deal saying it makes sense for Verizon now because it can raise the cash relatively cheaply while interest rates remain low. (each percentage point on interest rates in the US makes buying out Vodafone $600m more expensive). However it warns that Verizon is now doubling down on its exposure to the US mobile market. It is in the lead position in a relatively uncompetitive market but is that about to change?

1 thought on “Vodafone and Verizon – our guide to the deal of the decade”

  1. sayno2fluoride says:

    One point that shareholders may wish to bear in mind, when they vote on the proposal, is the change in treatment of tax on dividends. If this cash cow is surrendered UK holders will then be subjected to 30% tax on their dividend payments from Verizon. Although this can be halved by completing the W-8BEN form this would still leave a minimum of 15% tax being paid to the USA>

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