New York - A Verizon Communications shareholder has sued to stop its acquisition of Vodafone’s 45 percent stake in Verizon Wireless for $130 billion (R1.3 trillion) in what may be the first investor class action stemming from the deal.
Natalie Gordon alleged in her complaint that the agreement was “insufficient and inadequate” to shareholders of New York-based Verizon, which Gordon said overpaid for the stake. She seeks group status for the lawsuit on behalf of all affected shareholders.
“Verizon shareholders are being shortchanged and their investment in Verizon will be diminished and diluted as a result of the stock purchase agreement,” Gordon said in the complaint, filed in New York state Supreme Court in Manhattan on Thursday.
South Africa’s Vodacom is 65 percent owned by Vodafone.
Earlier last week, Verizon Communications agreed to buy Vodafone’s stake in Verizon Wireless, seeking full control of the most profitable US cellular carrier in the biggest acquisition in more than a decade.
“We believe this lawsuit is entirely without merit and Verizon intends to defend itself vigorously,” said Randal Milch, the executive vice-president and general counsel for Verizon Communications.
The deal, sought by Verizon since at least 2004, implies a total value of Verizon Wireless of almost $290bn – larger than the market capitalisation of Google or the gross domestic product of Singapore.
The wireless unit produces $21.8bn in operating income a year, all of which can now go into Verizon’s coffers so it can fund more network investment to take on mounting competition. Vodafone can exit a business whose dividends and operations it does not control.
In March Bloomberg reported that Verizon was eager to take full control of the wireless unit this year after it had weighed options that included a full merger of the two joint venture partners.
The companies said they expected the acquisition to close in the first quarter of next year. If completed at $130bn, almost Verizon’s entire market value, the deal would be the biggest since Vodafone’s acquisition of Mannesmann in 2000.
Guggenheim Securities, JPMorgan Chase, Morgan Stanley and Paul J Taubman served as Verizon’s lead financial advisers. Wachtell, Lipton, Rosen & Katz and Macfarlanes handled transaction counsel, while Debevoise & Plimpton advised the company on its debt financing.
Vodafone’s board was advised by Goldman Sachs, UBS and Simpson Thacher & Bartlett.
Verizon will pay Vodafone $58.9bn in cash, financed with credit from JPMorgan, Bank of America, Barclays and Morgan Stanley. The company will also issue $60.2bn in stock to Vodafone shareholders.
With her action, Gordon seeks to stop the transaction “unless and until the company adopts and implements a procedure or process to obtain a merger agreement providing fair terms for shareholders”.
The shareholder also seeks unspecified damages. – Bloomberg