Vodafone rides into an uncertain future after Verizon sale

 
David Hellier
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The sun was shining brightly yesterday on the first proper day back to work after the summer holidays and unless you were leaving a parked car in the shadow of the Walkie Talkie building in Eastcheap that had to be a good thing.

The financial markets were in fine fettle too, with the FTSE 100 in London reporting its biggest one-day rise since July in anticipation of Vodafone’s £84bn sale of its stake in Verizon Wireless.

The sale of the stake in its profitable US joint venture is not something that has always been top of Vittorio Colao’s agenda. He had rather been keener on a full-blown merger with Verizon in a deal that might have left him as chairman of the combined group.

Sadly for him it appears the Verizon group had less of an appetite for owning Vodafone’s assets than he had for getting hold of more of theirs.

Vodafone shareholders by and large have for some time wanted the group to dispose of its highly valuable Verizon stake and they will be delighted with the deal which comes at the expected £84bn price tag.

For a while negotiations appeared to be getting nowhere, with some City analyst blaming the expected huge tax liability that would accompany such a deal. There were countless reports of the liability being as high as £30bn, but this seems to be totally wrong.

Maybe it’s not so surprising the analysts were troubled by the tax complications. Vodafone itself had been feeding them the line.

In response to an analyst’s question in November 2010, chief financial officer Andy Halford, according to a verbatim account of the event, said: “An outright sale, as you refer to, has a significant capital gains tax element to it.”

It now looks likely that partly due to a tax change in 2002 under Labour, eight years before Halford’s comment, the telecoms group will pay virtually no capital gains tax as a consequence of the disposal.

Could it be that Vodafone’s management was pushing out the tax story because it didn’t wish to sell?

Now it is doing so, though, shareholders have insisted that Vodafone returns at least 70 per cent of the proceeds immediately, and it looks like it will. Not all of the group’s current investor base, which includes a significant number of hedge fund owners, are convinced Colao is the best steward of the company and would rather have cash in the hand than in his.

Once the dust settles there will be an opportunity for Colao to make minor acquisitions in Europe. The most audacious thing he might try is a bid for Liberty Global, owner of Virgin Media, but this looks like it might be difficult to pull off. The door is not entirely shut though.

Colao must have mixed feelings. He’ll be delighted by the price he has achieved for an asset he didn’t really want to sell. But he’ll be mindful that his group is being discussed as a possible takeover target now its profitable asset has gone. Project Spring, which was announced yesterday as a way of taking the business forwards, had better go down well with investors.


Time to act on Walkie Scorchie

City A.M. yesterday reported on the unfortunate story of the businessman whose car was partially melted by the rays of light reflected from the glass of the majestic Walkie Talkie building that is towering over the Eastcheap area of the City. The story soon made it across the globe. For all its impressiveness, there are clearly major environmental problems associated with this new building and the way the sun’s rays reflect from its glass windows.

Developers Land Securities and Canary Wharf need to quickly assure those small business, workers and other passers-by in the vicinity they have got the problem under control.

david.hellier@cityam.com
Follow me on Twitter: @hellierd