Those of us who have seen Vodafone (LSE: VOD) (NASDAQ: VOD.US) as a value play can today enjoy the spoils. The company has secured top price for its stake in Verizon Wireless (VZW) without much leakage to the taxman.
The next question is, to stay in Vodafone or to take the money and run?
The deal
These are the bare bones of the deal:
- Vodafone is selling its 45% stake in VZW to Verizon Communications for $130bn, roughly half in cash and half in Verizon shares, with a $5bn tax bill. After the purchase of Verizon’s stake in Vodafone Italy the net proceeds are $118bn, or 158p per share;
- At completion in Q1 2014, Vodafone shareholders will receive 112p per share in a mixture of Verizon shares and cash. They can choose to receive it as income or return of capital, and will be able to sell the Verizon shares immediately;
- Vodafone plans to pay a dividend per share of 11p for 2014, a yield of 5% on the current price, and to grow the dividend annually thereafter;
- Vodafone will spend £6bn to upgrade its network and retain a war chest of about $30bn to make further acquisitions such as Kabel Deutschland, but will return more cash if it can’t find suitable investments.
What next?
Vodafone shareholders can feel pretty happy with all this. Speculation will now intensify about what the ‘New Vodafone’ will do. The capital-hungry industry is consolidating and most analysts think Vodafone will either have to make big acquisitions or get acquired itself.
If Vodafone were to be snapped up by the likes of AT&T, shareholders would get a second payoff.
Equally, Vodafone’s strategy of acquiring cable assets in Europe to provide bundled services looks logical, and the generous dividend could keep shareholders happy while the business is repositioned.
Perhaps the biggest danger is that Vodafone rushes into deals to save itself from a predator.
The uncertainly might suggest it’s best to crystallise the gains now. However there are upsides and downsides in the uncertainty. There’s no need to act in haste, but over the next month or so I’ll be looking closely at whether it’s time to sell.
33% return
I’d certainly be happy to take profits.
Vodafone shares have risen by a third since last November, when the shares were hit by disappointing half-year results. Some brokers’ analysts have kept sell ratings on the stock throughout that time.
But for me the weakness was a buying opportunity, as I explained at the time in ‘Why I Bought Vodafone Last Week’.
The opportunity to make that 33% return in 10 months has passed, but other good opportunities will come along.
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> Tony owns shares in Vodafone but no other shares mentioned in this article. The Motley Fool has recommended shares in Vodafone.
