Vodafone Sells Japanese Operations For GBP8.9 Billion

LONDON -(Dow Jones)- Vodafone Group Friday said it has agreed to sell its 97.68% interest in Vodafone Japan to SoftBank for an enterprise value of about JPY1.8 trillion (GBP8.9bn) of which GBP6.8bn will be received in cash on closing.

Subsequently, Vodafone will distribute GBP6 billion of cash to shareholders, it said.

Whilst the nominal enterprise value derived from the cash proceeds and the face value of the non-cash instruments is Y2.0 trillion (GBP9.8bn), Vodafone estimates that the fair value of the transaction on an Enterprise Value basis is Y1.8 trillion (GBP8.9bn).

SoftBank intends to acquire 100% of the common equity of Vodafone Japan through a wholly owned SoftBank subsidiary (Bidco).

As a result of the transaction, Vodafone will receive three principal components of value: GBP6.8bn of cash payable on closing; preferred shares in Bidco with a face value of Y300bn (GBP1.5bn) carrying zero dividend. The preferred shares will be redeemable at Bidco's option. After June 2013 the preferred shares will carry a coupon of 12%, it said.

A subordinated loan with a face value of Y100bn (GBP0.5bn) repayable to Vodafone. This loan will be subordinated to Bidco's acquisition debt, carries a coupon of 5% and is repayable after Sep. 30 2013, it said.

Vodafone estimates the combined fair value of the preferred shares and the subordinated loan is GBP1.1bn, it said.

In addition Vodafone has been granted warrants with the right to subscribe to equity representing 10% of Bidco exercisable after Mar. 31, 2013 subject to certain minimum cumulative levels of EBITDA being generated between April 1, and March 31, 2013, it said.

Vodafone presently intends to retain the preferred shares and the warrants in the short to medium term, it said. SoftBank will assume GBP0.8bn of external debt and other liabilities outstanding from Vodafone Japan.

The preferred shares confer the right for Vodafone to appoint one director to the Boards of both Bidco and Vodafone K.K.

Vodafone and SoftBank have entered into discussions regarding the formation of a joint working relationship involving participation in the supply and distribution of data and content, it said.

Vodafone intends to complete its existing GBP6.5bn buyback programme for the year ending March 31, and will update the market further on its distribution policy in May.

Vodafone expects that the transaction and the return of capital will not impact its credit ratings.

Vodafone expects that the transaction and the return of capital together will be enhancing to adjusted earnings per share.

Under IFRS, Vodafone will record an impairment charge of GBP4.9 billion in its results for the year ending March 31, in respect of its interest in Vodafone Japan.

On completion of the disposal of Vodafone Japan, a profit or loss on disposal will be recognised as the difference between the final sale proceeds less costs to sell and the carrying value at the date of disposal. The profit or loss on disposal will include, among other items, the cumulative exchange differences in respect of Vodafone Japan previously recognised in equity from April 1, 2004 through to completion.

Under U.S. GAAP, Vodafone expects the disposal of its interest in Vodafone Japan to result in a significant loss that will be recorded within its results for the year ending March 31, it said.

Vodafone said it now expects to record an impairment charge in the second half of the year ending Mar. 31, 2006 at the upper end of the GBP23bn to GBP28bn range indicated on Feb. 27.

The impairment charge in respect of Vodafone Japan will be classified within discontinued operations in the Group's income statement.

Vodafone expects the transaction to complete in the first quarter of the financial year ending March 31, 2007, it said.

As a result of the disposal, Vodafone Japan will be classified as a discontinued operation. The net financial result for Vodafone Japan for the current and previous financial years, together with the impairment charge, will be shown as a single line item in the Group's income statement and will be excluded from the Group's adjusted performance reporting measures.

The group's cash flow statement will continue to include cash flows from Vodafone Japan, with separate summarised disclosure of the cash flows from Vodafone Japan for the current and previous financial years, it said.

The group's organic growth metrics will also be revised to reflect the disposal.

(END) Dow Jones Newswires "

Posted to the site on 17th March 2006