A decade of talk between Vodafone and Verizon culminates in a €130bn deal

A decade of on-off talks between Vodafone and Verizon Communications came to a head two months ago when their two chiefs met in a San Francisco hotel room to shake hands on the outlines of the third-largest M&A deal. Since then, Verizon's Lowell McAdam and Vodafone's Vittorio Colao have been working flat out to seal the $130 billion deal they presented yesterday.

Vodafone’s sale of its 45 per cent stake in the largest US wireless group by market share will allow Verizon to gain full control of the country’s most profitable mobile operator.

Verizon has been trying to buy Vodafone out of the joint venture – first formed in 2000 – since at least 2007 when the UK mobile group's then chief executive, Arun Sarin, rejected a $35 billion offer from the US group. Late last year, Vodafone and Verizon even explored a merger.

The sale will enable Verizon to retain 100 per cent of the profits that the US wireless business generates and give it full management control, removing the need for it to consult Vodafone on key strategic moves.

It will also create a windfall for Vodafone shareholders of $84 billion – significantly higher than analysts had expected – consisting of a special dividend of $23.9 billion and a pay out of Verizon shares in a so-called “split-off” deal worth about $60 billion.

Vodafone will end up owning about 30 per cent of Verizon Communications shares. The British mobile group hopes to offload these to its shareholders at preferential terms, allowing them to swap existing Vodafone shares for Verizon stock.

Mr McAdam, who has a close relationship with Mr Colao – a factor which, he said, helped seal the deal – called the transaction “transformational”.

A much bigger question for investors is where the deal leaves Vodafone. After these sizeable payouts, Vodafone will retain about $30 billion for investment in the business, for possible further deals and to pay down its debt from existing levels of about 2.3 times earnings before interest, depreciation and amortisation.

Analysts said Vodafone would remain vulnerable as a takeover target as its stronger cash position made it more digestible. Nevertheless, Mr Colao said further acquisitions remained on the agenda, saying it would take a 'market by market' approach. – Copyright The Financial Times limited 2013