Vodafone has confirmed it is in advanced talks with Verizon Communications about selling its stake in their Verizon Wireless joint venture in what would be the world's third-largest deal of all time.
The British firm said late on Sunday it was considering selling its 45% interest in Verizon Wireless, the biggest US mobile network, for $130bn in cash and shares.
Vodafone said there was no certainty an agreement would be reached with Verizon Communications and that it would make a further announcement as soon as possible.
The companies have been in talks for a number of days about the sale of the stake and are expected to confirm the deal as early as Monday.
Vodafone is said to be considering smaller acquisitions and higher network investments if the deal goes through.
Since it will be exiting a profitable business, it will be more reliant on its European assets including its German cable television operation.
Jefferies analysts said its reliance on European business posed a risk for the new Vodafone since company is underperforming comparable mobile peers in key markets like Germany and the UK.
"With key German/UK mobile assets underperforming comparable peers, we believe it is difficult to justify Vodafone commanding a premium to sum of parts (SoP)," the broker said.
Underpinning that judgement, said European assets are valued at 5.0 times' their enterprise value/earnings before interest, taxes, depreciation and amortisation [EV/EBITDA], versus the sector's average EV/EBITDA multiple of 5.3.
Ahead of the potential deal announcement the analyst raised its target price to 216p from 179p, citing confidence that an agreement will be reached, the likely deal terms, low capital -gains tax liability and rump asset valued at 5.0 times' estimated 2014 EV/EBITDA.
Acting as a backdrop one must take into account the recent intense M&A activity within the sector in Germany. Just last week Telefonica upped its bid for KPN's German unit E-Plus,
The disposal would be mostly tax-free as it involves selling a stake in a US domestic asset to a domestic buyer.
Jefferies recommended a 'hold' rating for the stocks.
"With Verizon Wireless growth peeled away it is critical for Vodafone to stabilise earnings before tax, interest, depreciation and amortisation (EBITD) and free cash flow across the core European mobile," the broker added.
"Accelerating 4G investments to establish competitive advantage and re-gain pricing power seems a logical first step. Near-term cash returns may be focused on buybacks to ease dividend pay-out pressure."
Hargreaves Lansdown said shareholders could receive a special dividend if the deal gets approved, according to The Daily Telegraph. The broker estimates Vodafone may pay out £40bn, or 83p per share.
Shares in Vodafone rose 3.61% to 213.70p at 14:38 on Monday.