Financial Management Assignment - Essay Example

The majority stakeholders were Vodafone Group Plc and Verizon Communications holding 45 percent and 55 percent stakes respectively. In the past both groups have tried to acquire higher stake in the entity. But the negotiations between them failed multiple times due to failure in arriving at right price for the deal. At one point of time Verizon suspended dividend payout to Vodafone for 6 years which many analysts perceive as a move that was aimed at pushing Vodafone to exit the venture. The primary reason for such motive was get higher ownership in Verizon Wireless that had become the third largest telecom entity in United States in very small amount of time.

the negotiations regarding stake sale failed in the past because Verizon Communication estimated that true value of Verizon Wireless was approximately $100 billion and it was willing to pay this amount to Vodafone to exit the venture. But, Vodafone estimates that after including the intangible aspects and future potential of Verizon Wireless in ever growing US and European markets should be much higher (approx $130 billion). Thus, the deal was successfully struck that was close to a decade in the making (Financial Times, 2013).

The terms and conditions of the deal are so agreed upon between the two entities that the change in ownership structure will not impact the services to odd 100 million customers of Verizon Wireless. The stock markets reacted positively to the deal announcement. The share prices of Vodafone surged to 12 year high in the international stock markets thereby increasing shareholders’ wealth by taking total market capitalisation of the company to all new highs (Reuters, 2013). In contrast the share prices of Verizon Communications rose by approximately 3 percent on the day when Vodafone officially announced the deal.

More specific details of the deal reveals that Vodafone will get about $59.8 billion in cash; remaining $60.1 billion