US/Australian investor Bronte Capital has called on Vodafone to either sell itself to Verizon or not do a deal at all.
Bronte chief investment officer John Hempton wrote in a blog post that a sale of Vodafone’s 45% stake in Verizon Wireless would be…
US/Australian investor Bronte Capital has called on Vodafone to either sell itself to Verizon or not do a deal at all.
Bronte chief investment officer John Hempton wrote in a blog post that a sale of Vodafone’s 45% stake in Verizon Wireless would be “absurd”.
Bronte, which says Vodafone is its third biggest investment, argues that a sale of the US wireless business to its partner Verizon would come with a significant tax bill for Vodafone and its shareholders.
Due to Vodafone’s overall weak performance its long term shareholders are not showing substantial gains, Hempton wrote. Consequently an exit would result in only small capital gains tax being payable.
But if the UK based operator sold its stake in Verizon Wireless – the telco’s most profitable investment by far – a high tax bill would follow.
“This makes it far more tax efficient for Verizon to buy Vodafone in its entirety than to buy Verizon Wireless,” he concluded in the post, claiming that a sale of the business as a whole would be “tens of billions of dollars more efficient.”
“Any deal where Vodafone sells its Verizon Wireless stake rather than selling itself starts with a tens-of-billions of dollars disadvantage in post-tax shareholder value,” he added.
The investor said a sale of Vodafone as a whole would be the best outcome, adding that paying shareholders with a mix of cash and Verizon stock would be an option. “The next best outcome is no deal at all,” he concluded.
Bronte Capital’s comments come at a time when speculation about a tie-up between Vodafone and its US counterpart Verizon are increasing.
In early January Verizon CEO Lowell McAdams had said that he would like to own 100% of Verizon Wireless. Later it was revealed that the two players had held talks about a variety of options in late 2012, including a possible full-scale merger.
Vodafone has also been linked to possible acquisitions to improve its position in the weak European market. The mobile operator recently considered a bid for German cableco Kabel Deutschland (KDG), but was also rumoured to look at targets such as Spain’s Ono and Yoigo.
Today, Vodafone also announced the creation of a joint venture with Orange to install fibre networks in Spain. The companies plan to invest €1bn for the rollout of the FTTH infrastructure.
