It looks as if Vodafone shareholders have hit the jackpot. The firm has agreed to sell its 45% stake in US mobile-phone company Verizon Wireless for a staggering $130bn (£83.5bn) to the majority shareholder Verizon Communications. The general consensus is that this is a very good deal for Vodafone. The company has fetched more than most analysts were expecting. And shareholders will pocket a bumper 112p per share in cash, which is welcome. But the big question now is: are Vodafone shares still worth holding on to after it has been paid out?
My view is no. Verizon Wireless was the jewel in Vodafone’s crown. Without it, Vodafone is nowhere near as attractive. Most of its remaining business is in European economies where customers are cash-strapped and the prices mobile operators can charge for voice services are being squeezed lower.
Vodafone knows this, which is why it plans to plough lots of money into high-speed data services. But this brings it into competition with traditional fixed-line operators, so making money won’t be easy. Vodafone has already bought Kabel Deutschland to defend its customer base in Germany by offering more bundled services (fixed line, broadband, mobile and TV) and may have to do the same thing in other European markets. Companies such as Talk Talk (LSE: TALK) in Britain have been mentioned as possible targets.
There’s also a possibility that Vodafone may be a takeover target itself. Europe arguably has too many mobile-phone operators chasing too few customers. If some were to get together they could save costs and hang on to a lot of their current profits. It is also possible that an Asian or US operator may want to buy European assets, and Vodafone would make a good fit.
However, it’s not all good news for Vodafone shareholders. To try to keep the share price and dividend per share the same as before the sale, it intends to halve the number of shares in issue. Talk of a dividend of 11p per share in 2014 is effectively 5.5p per share in old money – a dividend cut, in other words. This is despite the fact that the current dividend wasn’t based on any cash flow from Verizon Wireless. Vodafone seems implicitly to be saying that its current dividend policy is unsustainable. And if that’s the case, you’d be better off elsewhere.
Verdict: take the cash and sell