* Vodafone stock had surged on speculation of Wireless sale
* FT blog had said Verizon, AT&T may bid for Vodafone
* Vodafone has lawyers looking at deal options
* Verizon CEO says nothing has changed
(Adds Verizon CEO comment)
By Kate Holton and Chris Vellacott
LONDON, April 3 With the prospect of a full
takeover off the table for now, Vodafone investors
switched focus on Wednesday to whether the British group might
sell its best performing asset, its $115 billion stake in
Vodafone shares closed down 3 percent after Verizon
Communications said late on Tuesday it had no intention
of buying the world's second largest mobile operator, following
months of speculation.
The British group's shares had risen more than 25 percent
since the start of the year on hopes it would either sell its 45
percent stake in Verizon Wireless and return cash to
shareholders, or sell itself to the operator's majority owner
Verizon Chief Executive Lowell McAdam declined to comment on
the company's plans with respect to Vodafone at a press event in
New York to launch a technology contest.
"Nothing has changed for us," McAdam told reporters, in
response to a question about whether his company is any more
likely now than before to reach a deal to buy Vodafone's stake
in Verizon Wireless.
The day before Verizon repeated its long-held view that "it
would be a willing purchaser of the 45 percent stake that
Vodafone holds in Verizon Wireless," in a written statement it
had to put out after Vodafone shares rose on deal speculation.
"It does not, however, currently have any intention to merge
with or make an offer for Vodafone, whether alone or in
conjunction with others," Verizon had said in the statement.
One top 15 shareholder in Vodafone told Reuters that Chief
Executive Vittorio Colao had played his hand well until now,
facing down previous demands to sell the stake in a business
that has grown into the biggest mobile operator in the United
With Vodafone now receiving a hefty annual dividend from the
business, the shareholder believes the group is in a stronger
position to negotiate an exit when the time is right, and they
sense a change in sentiment.
"Over the last six months there has been a subtle change of
tone from Vodafone management," the investor said.
"While management have always in theory been willing sellers
at the right price, I think now it's more of a practical reality
that they are in a place psychologically where they are prepared
to sell it."
One of the main sticking points to a deal has been a capital
gains tax bill of around $20 billion faced by Vodafone if it
sells its holding, meaning Verizon would have to pay a high
price to make it worthwhile.
"Given that Vodafone will never control the asset, at some
point it makes sense to sell it so they are right to be
considering that," the shareholder said. "Vodafone aren't forced
sellers so if the price isn't right they can walk away and try
BREAK THE DEADLOCK
Strategists at Olivetree Securities said the statement was
designed to reach Vodafone shareholders directly, to try and
break the deadlock over an exit that has existed since Verizon
Wireless was formed by the two groups in 1999.
"That message appears to be: 'If you want a deal, it's your
own management team holding this up - you need to tell them to
engage more intensely/shift their price expectations'," it said.
Several people familiar with the situation have told Reuters
the two partners have held regular, senior-level talks to
discuss options which have ranged from a full takeover, a stake
sale and any resolution to the capital gains tax issue.
Vodafone has lawyers from Linklaters, bankers from UBS and
consultants from McKinsey looking at deal options and structure,
according to three people familiar with the situation.
But London-based analysts, investors and banking sources
believe it will be a struggle to agree a price that suits both
groups. Bernstein analyst Robin Bienenstock took the Verizon
statement to mean it had approach Vodafone for a deal and been
"In other words we view Vodafone as a (very) reluctant
seller," it said.
Deutsche Bank suggested that the status quo remained the
most likely outcome, and also the most sensible. It said
earnings from Verizon Wireless would continue to grow and the
annual dividend would support Vodafone at a time when its core
European assets are struggling from weak consumer spending.
(Additional reporting by Sinead Carew, Editing by Tom Pfeiffer
and Andrew Hay)