After much speculation, Vodafone (VOD) formally announced this week that it has reached an agreement to sell its minority stake in US mobile phone business, Verizon Wireless, for $130bn (£84bn) to joint venture partner, Verizon Communications (NYSE: VZ).
The deal is the third largest corporate acquisition of all time and marks the end of a long-running saga between the two joint venture partners over the stake. Vodafone will receive the proceeds in a mix of cash and Verizon shares, with the eye-watering transaction valuing the US subsidiary at an attractive 9.4 times enterprise value to cash profits ratio over the past 12 months. Both sides naturally said they were happy to have found "the right price", although analyst consensus would suggest Vodafone got the better deal.
The UK-based mobile behemoth plans to return $84bn of the proceeds to shareholders once the transaction is completed in the first quarter of 2014, mostly through Verizon shares but also through a special dividend. The shareholder return is equivalent to 112p a share (Vodafone's current share price is 205p), comprising 32p of special dividends plus 80p worth of Verizon shares.
Vodafone says it intends to implement a new investment programme, nicknamed Project Spring, to stimulate organic growth in its businesses by investing £6bn over the next three financial years. It will also increase the total dividend in 2014 by 8 per cent to 11p.
Analysts say the mega deal could usher in a fresh round of deal-making in the telecoms and cable industry, where a trend towards consolidation is already under way. Indeed, as part of the Verizon Wireless deal, Vodafone will acquire Verizon Communication's 23.1 per cent stake in Italy's Omnitel. Microsoft also made a €5.4bn all-cash bid this week to acquire Nokia's mobile phone business and patents portfolio, although clearly that deal was in the works prior to the Verizon transaction.
