Vodafone shares tumble over US decision

SHARES in Vodafone tumbled yesterday after its US partner Verizon Communications ruled out a full takeover or merger with the mobile phone giant.

Vodafone’s shares have risen by more than 25 per cent this year on hopes that it would sell its 45 per cent stake in Verizon Wireless, America’s largest mobile phone operator, and end a fractious relationship.

But with a sale likely to incur a multi-billion pound tax bill for Vodafone, investors and analysts had suggested the two groups could merge instead.

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The denial by Verizon pushed shares in Vodafone down x per cent last night to xp.

Verizon said it did not have “any intention to merge with or make an offer for Vodafone”, reversing Vodafone’s sharp share gains on Tuesday that saw the stock surge to its highest level for more than 10 years.

There was speculation that Verizon and its biggest US rival AT&T were working on a £161bn break-up bid.

The rumours suggested Verizon would take Vodafone’s US assets and AT&T would take the rest.

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The US telecoms group said: “As Verizon has said many times, it would be a willing purchaser of the 45 per cent stake that Vodafone holds in Verizon Wireless.

“It does not, however, currently have any intention to merge with or make an offer for Vodafone, whether alone or in conjunction with others.”

Analysts at Olivetree Securities said the statement was aimed at Vodafone shareholders, to try and break the deadlock that has existed since Verizon Wireless was formed by the two groups in 1999.

“That message appears to be: ‘If you want a deal, it’s your own management team holding this up – you need to tell them to engage more intensely/shift their price expectations’,” Olivetree said in a note.

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Speculation of a resolution to this story will continue and thus Vodafone shares won’t fall far.”

The Verizon/AT&T takeover story was the latest of several reports speculating on the future of Vodafone as investors ask whether it should restructure and sell the Verizon Wireless stake, its best performing asset.

It is understood that the two partners have held regular, senior-level talks to discuss options for either a full takeover, a stake sale and a resolution to the capital gains tax problem. Vodafone is reported to have lawyers from Linklaters, bankers from UBS and consultants from McKinsey looking at deal options and structure.

But UK analysts, investors and banking sources believe the two sides will struggle to agree a price that suits both groups.

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That could leave the two firms stuck with the status quo, with Vodafone holding a minority stake in its most important asset and Verizon unable to own all of a business that it has long coveted.

Bernstein analyst Robin Bienenstock said: “We think that the wording of Verizon’s press release also makes it clear that Verizon have made their interest in the Verizon Wireless stake to Vodafone and been rebuffed.

“In other words we view Vodafone as a very reluctant seller. The structure delivers Verizon Wireless distributions to Vodafone tax-free, making it more valuable to Vodafone in its current form than in a sale to Verizon.

“While the stock Vodafone may not fall back completely, it is hard to see how it can maintain yesterday’s levels without that bid speculation, and with some evidence that a stake sale is problematic at best.”

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Verizon has long been keen on assuming full control of America’s largest network. Recent reports suggested a full merger of the two companies was being considered, but broke down in December because of disagreements over leadership and the location of new headquarters.

Should a sale eventually go ahead, Vodafone is likely to use the proceeds on a major European deal or a return of cash to shareholders.

However Vodafone chief executive Vittorio Colao is not thought to be in any hurry to quit America.

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