How should Vodafone spend Verizon’s $130 billion?

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The long-anticipated sale of Vodafone's stake in its wireless joint venture with Verizon is expected to leave the European telecoms giant with tens of billions of dollars to spend. So what will be top of chief executive Vittorio Colao's shopping list after the second-biggest M&A deal of all time?

For starters, Vodafone shareholders are hoping for a hefty special dividend or share buyback program, which should be announced alongside the final details of the expected $130 billion cash-and-shares deal. An announcement is expected late Monday or early Tuesday, and if it goes ahead it would be the second largest M&A deal on record, according to Dealogic.

(Read more: Largest ever loan supporting Verizon deal)

The potential for distributing cash to shareholders is one of the major factors which has seen Vodafone's share price shoot up in recent days.

The deal is already causing controversy in the U.K., where leading Labour politician Margaret Hodge hasexpressed concerns over reports that Vodafone will not pay any tax in the U.K. on its profits from the sale.

If it offloads its Verizon stake at close to $130 billion, analysts at Citi estimate that around $40 billion could be returned to Vodafone shareholders in cash and Verizon shares.

Yet beyond this, Vodafone is being given the opportunity to decide whether it will ultimately be predator or prey in the reshaping of the telecoms market, which is undergoing a substantial re-shaping with deals like tycoon Carlos Slim's America Movil's bid for Dutch KPN.

(Read more: Vodafone investors split over how to use windfall)

Analysts are already speculating that AT&T may bid for a smaller, cheaper, post-Verizon Wireless Vodafone.

"A smaller Vodafone, post a sale of its stake in Verizon Wireless and capital distribution could, in our view, become a bid target, a qualification less plausible today due to its large size and the potential for value loss on a forced sale of VZW for some bidders," according to analysts at Citi, who have raised their share price target for Vodafone stock to £2.30 ex dividend.

"Randall Stephenson (the chairman and CEO of AT&T) has made it very clear that he is interested in wireless assets in Europe. Which one of those do you think might be up for sale?," Robin Bienenstock, senior analyst at Bernstein Research, told CNBC.

She has a price target for £2.20 for Vodafone, or £2.50 if it becomes an acquisition target.

If Vodafone wants to avoid becoming a target, it is likely to have to go on the hunt itself. There will be plenty of companies waiting for Colao's call after this deal is announced.

Several analysts have suggested Liberty Global, the broadband company, might be a large enough acquisition to keep the wolves from the door. The "quad play" market – where consumers are offered bundles including broadband, mobile phone, television and fixed telephone line rental – is increasingly attractive to telecoms companies.

Yet there might be issues with competition in larger markets like the U.K. and Germany, Bienenstock pointed out.

(Read more: Cramer on Vodafone)

"There are things they have to buy in Europe to protect some of their businesses," she said, citing Spain, Italy and Eastern Europe as key target markets.

Spain's Ono and Italy's Fastweb have also been named as potential targets for Vodafone by analysts.

Outside of its core European operations, Vodafone could look to emerging markets for its source of growth. Bienenstock named Telecom Italia subsidiary TIM Brasil as a potential target in Brazil.

Follow Catherine on Twitter: @cboylecnbc