Update: Vodafone sells Japanese arm for £8.9bn

Vodafone has completed the sale of its Japanese arm to local internet and telecoms company Softbank in a deal that values the company at ¥1.8tr, or around £8.9bn.

In return for its 97 per cent stake in Japan's third biggest operator, Vodafone KK, Vodafone will receive some £6.8bn in cash, of which £6bn will be distributed to shareholders.

Softbank will now become the sole owner of the mobile operator, through a subsidiary Bidco. Vodafone will receive ¥300bn (£1.5bn) of preferred shares in Bidco and will now have the option to appoint a director to the board of both Bidco and Softbank.

According to Vodafone, the company has decided to withdraw from the market due to intense competitive pressure.

Vodafone CEO Arun Sarin said in a statement: "In the case of Japan, we have been making progress on the turnaround in recent months. However given the relative competitive position of the business, the reduced prospects for superior long term returns and a good offer from Softbank, the board took the decision to sell."

Since the 2001 acquisition of J-Phone, later rebranded under the Vodafone umbrella, the operator has consistently failed to make strides against its main opposition in the country, DoCoMo and KDDI's au. It was also subjected to criticism over its 3G strategy, which saw it launch its third generation offerings behind its major rivals and with what were considered unattractive handsets.

Gavin Patterson, principal analyst at Informa Telecoms and Media, said aside from the cash, Vodafone will have profited very little from its time in Japan, describing it as a "complete disaster".

He said: "Japan was viewed as one of those markets that Vodafone had to be in, especially given the technological role DoCoMo was playing with the development of 3G. They got into the market for all the wrong reasons and have floundered ever since. Vodafone were arrogant - they thought 'If anyone can compete against DoCoMo, it's us', without taking on the dynamics of the Japanese market."

According to Ovum analyst Robin Hearn, Vodafone has however managed to make a decent fist of the end of its Japanese operations.

Hearn told silicon.com: "Removing Japan removed an irritation - it was an itch that needed to be scratched - but they still haven't changed their long-term guidance. I think returning cash to shareholders was the best use of the money in the circumstances but if they hadn't been so embattled it would be good to see them use it to grow out other markets [such as India]."

News of the Japan sale comes on the heels of a period of boardroom discontent at Vodafone, which recently saw honorary life president Sir Chris Gent resign his position at the operator and the unexpected departure of fellow 'old guard' board member, chief marketing officer Peter Bamford. The events prompted speculation Sarin's position at the mobile firm was tenuous and chairman Lord MacLaurin made a public declaration of support for the CEO.

The stock market reacted cautiously to the news, with Vodafone shares climbing around half a per cent.