Vodafone to Sell 3.2% Stake in China Mobile for US$6.6 Bil.

Vodafone has announced an agreement to sell its entire 3.2% interest in China Mobile and the continuation of commercial and technology co-operation between the companies. Vodafone expects the cash consideration to be approximately £4.3 billion (US$6.6 billion) before tax and transaction costs. It is intended that approximately 70% of the net proceeds will be returned to shareholders by way of a share buyback, with the remainder used to reduce the group's net debt, which stood at £32.7 billion at the end of June. Vodafone agreed to sell its entire shareholding of 642,868,587 shares in China Mobile by way of an accelerated bookbuild offering. Goldman Sachs, Morgan Stanley, and UBS are acting as lead managers and bookrunners.

Vodafone initially bought a 2.18% stake in China Mobile in 2000 when it announced a strategic alliance with the group, and then increased its shareholding to 3.20% in 2002. Since the initial investment, the two mobile giants have enjoyed a strategic partnership. Following the latest announcement, both companies will continue the co-operation in areas such as roaming, network roadmap development, multinational customers, and green technology. Commenting on the transaction, Vittorio Colao, chief executive of Vodafone, said that the transaction "achieves a near doubling of Vodafone's original investment in China Mobile and combines our stated portfolio strategy with ongoing cooperation with China's leading telecommunications company".

Outlook and Implications

• Divestments from Minority Shareholdings: The news did not come as a surprise as Colao had earlier indicated that the group was "open-minded" about selling stakes in companies in which it did not have management control. The deal is likely to be the first of several divestments from minority shareholdings. Vodafone is reportedly looking to sell its 24.4% stake in Polish mobile operator Polkomtel, but Polkomtel's shareholders have not yet agreed on the sale process. Vodafone is also likely to sell its 44% stake in French telecom operator SFR, in which media conglomerate Vivendi has a 56% controlling stake. Meanwhile, the group is mulling a sale of its minority stake in India's leading mobile operator Bharti Airtel. Investors are also frustrated about Vodafone's 45% stake in Verizon Wireless, which has not paid a dividend since 2006. However, Vodafone would face a sizeable tax liability from the sale of its stake in Verizon Wireless, and Verizon's 55% shareholder, Verizon Communications, is more interested in paying down the group's debt.
• New Strategy Expected: Colao had earlier said Vodafone will lay out a new strategy soon that would take into account the explosion in wireless data and the growing number of mobile operating systems as it posted a strong fiscal first-quarter performance. Vodafone's current strategy, presented by Colao in November 2008 just a few months after he took the reins, is starting to pay off. For the quarter ending 30 June, Vodafone saw its revenue rose by 4.8% year-on-year (y/y), driven by significant growth in its emerging markets and further signs of recovery in Western Europe. The group service revenue also returned to organic growth of 1.1% y/y, boosted by 13.7% growth in India and record 23.7% growth in Turkey. The group also saw key growth in its data revenues of 25.4%, with growth in Europe alone accelerating to 23.3% as a result of strong smartphone and mobile connectivity sales (see World – United Kingdom – India: 23 July 2010: Vodafone's Q2 Revenues Up 4.8%, Sees Improvement in India).