Vodafone is selling its stake in America's biggest mobile network in the third-largest transaction in corporate history
Vodafone's senior team will collect a £56m windfall when the mobile operator completes the sale of its Verizon Wireless subsidiary next year.
In the third-largest transaction in corporate history, Vodafone is selling its stake in America's biggest mobile network to its joint venture partner,Verizon Communications, for $130bn (£80.4bn), and has promised to return 71% of the money to shareholders.
The return is worth 112p per share and will be paid in a mixture of cash and Verizon Communications shares, delivering significant gains for Vodafone's top managers. The company has disclosed that its full senior team, about 250 people, has accumulated a total of 50m Vodafone shares. The deal will see them collect £16m in cash plus £40m worth of Verizon shares. Chief executive Vittorio Colao will receive more than £10m, a sum nearly equivalent to his £11m remuneration last year.
Each Vodafone investor will see the number of shares they hold roughly halved as part of the deal, to reflect the fact that the valuable US business has been sold. The formula allows shareholders, including Vodafone executives, to lock in recent gains in the company's stock market value by receiving cash and Verizon shares which can be sold quickly. Vodafone's stock has soared to a 12-year high since the deal was announced.
Unlike outside investors, Vodafone executives have not paid cash for their shares, but were given them under incentive plans, meaning much of the Verizon windfall will be pure profit. Colao stands to make a significant gain, because he has not sold a single share in Vodafone since being appointed chief executive, other than to cover his tax bills.
The torrent of money that will flow into the British economy from the deal has been compared to the Bank of England's quantitative easing injections.
The record for such deals is still held by Vodafone's $200bn acquisition of Germany's Mannesmann, while AOL's merger with Time Warner is considered the world's second largest transaction.
Vodafone is one of the most widely held stocks in Britain. Its ability to pay the highest dividend of any blue chip company listed in London has made it a mainstay choice for pension funds. Many executives are expected to re-invest their gains back into Vodafone, which has promised to increase its dividend by 8% to about 11p a share next year.
A Vodafone spokesman said: "A large part of executive remuneration is based on performance and is paid in shares – ensuring alignment of their interests with those of our shareholders."
The windfall process is more complex than a dividend, leaving investors with a mix of cash, Verizon shares and Vodafone stock equivalent to Vodafone's share price the day before the deal closes.
The Verizon return is worth 112p per Vodafone share, and it is expected one in every two Vodafone shares will be cancelled. If the stock price is 224p when the transaction closes, two Vodafone shares would be worth 448p. An investor owning two shares will be asked to trade in one of them, receiving a 224p windfall and being left with a single share worth 224p. The number of shares cancelled will depend on the final stock price. The stock closed at just under 228p on Friday.
Vodafone's involvement in the American mobile industry dates to its acquisition of Airtouch in 1999. Airtouch was then merged with Bell Atlantic in 2000 to form Verizon Wireless. The company they created went on to lead consolidation of America's regional mobile networks, emerging along with AT&T as one of the two dominant players.
Verizon Wireless was valued at $70bn when it was created, while Vodafone's exit implied that its worth 13 years later had increased to nearly $290m.
Article Source : http://www.guardian.co.uk
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