Vodafone shares surge as it confirms talks over $130bn sale of Verizon Wireless

Company in ‘advanced discussions’ regarding disposal, but it warns there is no certainty of agreement being reached

Shares in Vodafone rose 3.5% to 231.5p on Monday morning as it confirmed that it is in “advanced discussions” to sell its stake in Verizon Wireless for $130bn (£84bn), with reports suggesting the largest corporate transaction in a decade could be announced on Monday.

The Vodafone board is understood to have met to approve the deal on Sunday, with Verizon’s directors due to meet on Monday. The companies are expected to publish the terms of their agreement later in the day.

In a statement on Sunday night, the British company said: “Vodafone confirms that it is in advanced discussions with Verizon Communications Inc regarding the disposal of Vodafone’s US group whose principal asset is its 45% interest in Verizon Wireless for $130bn. The consideration would substantially comprise a mixture of Verizon common stock and cash.”

The company warned “there is no certainty that an agreement will be reached”, and said a further announcement would be made “as soon as practicable”. Goldman Sachs and UBS are advising Vodafone on the deal.

Vodafone is on the verge of relinquishing a 45% interest in America’s largest mobile phone company to its joint venture partner Verizon Communications, allowing the fixed-line telecoms group to take full control after 13 years of often fractious shared ownership.

The sale is expected to lead to a multibillion injection of cash into the British economy. Verizon Communications is reportedly offering to pay half of the purchase price in cash and the balance in its own shares, with Vodafone investors lobbying for a majority of the proceeds to be returned to them.

Analysts at Citi said on Friday Vodafone could distribute $40bn in cash and Verizon shares valued at between $26bn and $34bn to shareholders.

They also believe Vodafone can structure its deal so as to reduce tax to $5bn, significantly less than the $40bn that could be due. Under the terms of the deal, Vodafone would sell the US-registered company through which it owns Verizon shares and a number of its European assets to Verizon Communications. The European assets would then be sold back to Vodafone, minimising the tax bill.

Vodafone could also take advantage of UK legislation known as substantial shareholdings exemption, which means companies do not have to pay capital gains tax on profits made from selling shares in another firm.

With proceeds from the blockbuster transaction likely to be out of the reach of the British tax authorities, the deal could deepen the controversy about Vodafone’s contributions to the public purse in the UK.

A further $5bn may be deducted from the purchase price in exchange for Verizon relinquishing its stake in Vodafone Italy, leaving $120bn to be paid in cash and shares.

Verizon is understood to be raising $60bn in cash, with the financing in a mixture of loans and corporate bonds arranged by JP Morgan, Morgan Stanley, Barclays and Bank of America Merrill Lynch.

A $60bn payment in Verizon Communications shares would see Vodafone and its investors handed a substantial slice of the US company. As of Friday, Verizon Communications had a stock market value of nearly $136bn.

Vodafone’s exit from Verizon Wireless would be the largest transaction since Time Warner was bought by AOL in 2001, and the third largest in corporate history, after the AOL deal and Vodafone’s purchase of German telecoms group Mannesmann.

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