Shares in Vodafone have risen as much as 9.4 per cent in early London trading this morning as the company says it is in talks over the possible sale of its $100bn (£64bn) stake in Verizon Wireless.
Vodafone notes the recent press speculation and confirms that it is in discussions with Verizon Communications Inc. regarding the possible disposal of Vodafone's US group whose principal asset is its 45pc interest in Verizon Wireless.
Verizon reportedly wants to pay around $100bn for Vodafone's 45 per cent stake, while Vodafone wants something closer to $130bn. Analysts see a deal at the upper end of this range.
Vodafone's share price jumped as high as 207.4p - a price not seen since early 2001 - and added around £8bn to the company's value.
Verizon Wireless is a key revenue generator for Vodafone, with service revenue increasing 8.1 per cent in the year ending 31 March 2013 and Vodafone's share of profits increasing 30.5 per cent to £6.4bn. In the quarter ended 30 June 2013, Verizon Wireless reported service revenue growth of 7.2 per cent, driven by an expanding connections base and increased smartphone penetration.
Joe Rundle, head of trading at ETX Capital, says a disposal would allow Vodafone to pay down its debt and - if Verizon buys all of the holding company - spare it from as much as $35bn in taxes.
Vodafone’s market cap today jumped up to around $152bn, so a disposal around $130bn is a transformational fortune-changing deal, which is likely to see Vodafone become the new darling of the telecom sector.
So long as Vodafone pays down its debt, runs steady ships in international operations (Western Europe in particularly) to mitigate the losses in southern European businesses, and delivers incremental increase to earnings via the integration of Kabel Deutschland, there’s little reason to be bearish about this stock, especially with a dividend yield around 5 per cent.
Since the start of the year, Vodafone’s share price has risen by over a fifth, thanks largely to a turnaround in its US business.