LONDON -- Shares in Vodafone (LSE:VOD) (NASDAQ:VOD) jumped up to over 195 pence in early trade, after yesterday's positive trading update from Verizon Communications (NYSE:VZ) supplemented the U.K.-based telecoms company's recent price.
Management at Verizon played down the significance of Vodafone incurring a huge capital gains tax bill from the potential sale of its 45% interest in joint-venture Verizon Wireless, with chief financial officer Francis Shammo commenting: "We are extremely confident that such a transaction could be accomplished in a manner that is very tax efficient and would not result in a tax on the gain in that stake."
The statement came after Verizon revealed in an interim management statement that profits in its wireless business were higher-than-expected during the first quarter, a 16% increase year on year aided by lower costs and continued growth, as Verizon Wireless added 677,000 retail subscribers in the first quarter against previous expectations of approximately 634,000.
The joint-venture between Vodafone and Verizon is worth around 80 billion pounds, and the tax issue has been widely recognized as one of the main stumbling blocks preventing a sale that could prove very lucrative to shareholders. Recent weeks have seen Verizon rule out a 130 billion pound all-out bid with AT&T for Vodafone, but the rumors have persisted.
The comments coming from across the pond suggest that we could be getting nearer an outcome in these protracted negotiations -- and the market has reacted accordingly, pushing Vodafone's share price up and could well exceed its 10-year high during trading today.
Vodafone's shares had previously reached an end-of-trading high of 192 pence at the beginning of the month, before dropping off after the bid speculation was refuted. Following the recent rumours, though, the telecom company's share price has climbed as the market appeared to have newfound hope for the stock. And on a price-to-earnings ratio of below 12 and a consensus forecast of a 5.4% yield, well above the FTSE 100's average of around 3%-3.5%, it's not hard to see why.
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Sam Robson owns shares of Vodafone. The Motley Fool recommends Vodafone and Vodafone Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.