Vodafone sells China Mobile stake for $6.6 billion

HONG KONG/LONDON (Reuters) - Vodafone VOD.L, the world's largest telecommunications operator by revenue, said on Tuesday it sold its 3.2 percent stake in China Mobile 0941.HK for $6.6 billion.

The sale was part of Vodafone’s new strategy to exit non-strategic minority investments, which analysts and investors believe have weighed on the company’s overall value in recent years.

Vodafone said UBS, Goldman Sachs and Morgan Stanley were handling the placing and around 70 percent of the net proceeds would return to shareholders via a buyback, while the remainder would be used to pay down debt.

Vodafone Chief Executive Vittorio Colao has said the group’s minority holdings are not considered essential and it would focus on its core markets in Europe, Africa and India instead.

People familiar with the matter had earlier told Reuters that eight banks including Goldman Sachs, UBS, Bank of America Merrill Lynch, JPMorgan, Morgan Stanley and HSBC were pitching to arrange the placing, managed by corporate adviser Rothschild.

The exit comes after Vodafone’s lock-up period on the China Mobile stake ended recently. One person familiar with the situation said Vodafone had raised the idea of selling the stake a year ago, and ahead of recent investor criticism.

“Today’s 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,” Colao said in a statement late on Tuesday.

The two groups said they would continue to work together on issues such as roaming and technology developments.

Vodafone purchased the holding in two parts between 2000 and 2002 for a total of $3.25 billion. China Mobile shares are also currently performing well, up 12.5 pct in 2010, compared with a 2.2 percent fall in the broader Hong Kong Index .HSI.

And analysts had said it would be one of the easier minority stakes to sell for Vodafone, compared with other possible disposals such as its 44 percent stake in France’s SFR and its 45 percent holding in Verizon Wireless, which only have one possible buyer each.

Despite China’s position as the world’s biggest mobile market, with nearly 800 million subscribers, growth for China Mobile and its competitors has also been slowing as revenue from voice calls declines in the face of increasing cellphone penetration rates.

Vodafone said in July it was reconsidering its strategy on holding minority stakes in companies, prompting speculation it would look to sell or spin off its stakes in operators in countries including France, the United States, Poland and China.

Senior bankers said Vodafone was not under pressure to sell assets to shore up its balance sheet or improve cash flow.

Vodafone shares closed unchanged at 159.2 pence after recovering from being down in earlier trading, following a Reuters report that the company had kicked off the sale process.

Additional reporting by Michael Flaherty, Quentin Webb and Victoria Howley; Editing by Will Waterman and Steve Orlofsky