US incumbent Verizon Communications is examining a potential US$100bn cash and stock bid to acquire Vodafone’s 45% stake in the telcos’ US joint venture, Verizon Wireless, according to a Reuters report referencing two people familiar with the…
US incumbent Verizon Communications is examining a potential US$100bn cash and stock bid to acquire Vodafone’s 45% stake in the telcos’ US joint venture, Verizon Wireless, according to a Reuters report referencing two people familiar with the matter.
Verizon has hired financial and legal advisors to prepare a bid that would see the US operator raise US$50bn in debt financing, the sources said in the report.
Verizon has long-expressed interest in buying Vodafone out of Verizon Wireless, but is now reported to be ready to push more aggressively for a deal and may make a public bid if the UK telco refuses to play ball. Vodafone shares rose 2.82% in today’s morning trading on the back of the news.
Analysts commented Vodafone shareholders would be looking for a price significantly north of US$100bn for the stake, perhaps as high as US$120bn according to Bernstein or US$140bn according to New Street.
Any deal is complicated by the capital gains tax Vodafone would have to pay on the sale of its stake, estimated at US$20bn.
In its recent Q1 call Verizon CFO Fran Shammo expressed confidence that a deal could be done “in a manner that is very tax-efficient, and would not result in a tax on the gain in that stake”.
As Bernstein analysts point out, this does not take into account the political climate in the UK.
“Verizon has claimed that there are ways of doing this deal that are virtually tax free implying that Vodafone could pay as little as 5% or US$5bn of tax. While this may be technically true recent tax cases in the UK (including Starbucks’ voluntary tax payments to the UK government) suggest that an attempt to avoid tax on such a large and high profile deal would be very badly received.
“Even if the technical avoidance of tax is possible, investors should assume that the value of Vodafone after such an event would be discounted by a less welcoming domestic environment.”
