British mobile phone group Vodafone pulled off one of the biggest deals in corporate history on Monday− selling its stake in America's biggest mobile phone business for $130bn (£84bn).
More than £54bn of the proceeds will be returned to Vodafone's shareholders − with £22bn going to UK investors. Vodafone will also pour cash into its existing business to accelerate the rollout of superfast 4G broadband services across Europe.
The deal − the third biggest transaction between two companies ever recorded − involves Vodafone selling its 45% shareholding in Verizon Wireless to Verizon Communications, which owns the other 55% of VW. It will end years of bickering between the two joint owners, who had tussled over the direction and control of Verizon Wireless, which was formed in 2000 and has since become the US's most profitable mobile carrier.
Coming five years after the collapse of Lehman Brothers in the US which triggered the worldwide credit crunch, the deal also underlines the extent to which financial markets have recovered: $65bn of the cash Verizon is using to finance the deal is coming from four banks.
Vodafone is one of the UK's most widely held shares and the huge return of cash was likened by some City sources to the Bank of England's quantitative easing programme, which aims to boost the economy by electronic money printing.
As many as 500,000 private shareholders in the UK who own up to £10,000 of shares each could be in line for payments of up to £4,000, a windfall that will be tax-free as long as it is invested through an individual savings account (ISA) or pension fund.
Cash returned to pension funds is likely to be immediately reinvested in the stockmarket, which could drive share prices higher.
The deal was thrashed out by the chief executives of the two companies on Saturday morning and rubber stamped by the directors of the UK and US businesses on Sunday and Monday. The details were released last night after the stock exchange had closed.
Vodafone plans to invest £6bn over the next three years on updating its own mobile and fixed networks and opening more high street stores. It will also use the proceeds to pay off debt to arm itself for further investments in Europe and emerging markets.
Vittorio Colao, Vodafone's chief executive, insisted it was "not a retreat in any way" from the US, but declined to discuss what interest he might have in US businesses in future. He paid tribute to Chris Gent, the former Vodafone chief executive who led the move into the US: "He had a great idea." It is unclear exactly how much profit Vodafone has made from the deal, but it is tens of billions of pounds.
In what could become a controversial element of the deal Vodafone will not have to pay any UK tax on the deal − even though it had insisted for years that it could not exit from the prickly relationship with Verizon Communications because it would have to pay capital gains tax (CGT) at 40%.
But a company tax law introduced by Gordon Brown in 2002 governing the sale of substantial shareholdings means that Vodafone was never liable for CGT. Vodafone's stake in the US business is owned by a Dutch holding company − similar rules on CGT apply in the Netherlands. It will, however, pay about $5bn in US taxes. "This transaction happened in the Netherlands, but even if it had happened in the UK there would be no tax liability," Colao said as the deal was closed. He insisted it was a completely different situation to the rows that have broken out over Google's and Amazon's tax arrangements.
The terms of the deal will give Vodafone almost $60bn in cash, and another $60bn in Verizon Communications shares, together with $11bn from smaller transactions related to businesses it owns.
The Verizon sale is not the first time Vodafone has pulled off a gigantic deal. It also made the world's biggest ever deal in 2000 when it made a hostile takeover of German industrial and mobile conglomerate Mannesmann for $200bn (£112bn at the time). However, the UK group had to write off the acquisition six years later − which at the time resulted in the UK's biggest ever corporate loss of £23.5bn.
The years-long struggle to control Verizon Wireless was likened by Benedict Evans, technology analyst at Enders Analysis, to "two pythons swallowing the same pig from opposite ends. Noses meet in the middle and neither can go forward or back".
Solving the tax quandary, along with a rise in Verizon's offer from $100bn to $130bn, finally shifted Vodafone − and meant that Verizon Communications could swallow its namesake whole.
Over the past 20 years Vodafone has expanded aggressively to more than 30 countries across Europe, Africa and Asia. But without the US business, it will be more reliant on its European business, as well as being less profitable.
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