Verizon moves to buy Vodafone's stake in Verizon Wireless
Verizon Communications is pursuing full ownership of Verizon Wireless by buying out Vodafone's stake.
(Page 2 of 2)
The only M&A deals bigger than this would be Vodafone’s $203 billion takeover of Germany's Mannesmann in 1999 and AOL's $181 billion acquisition of Time Warner the following year.Skip to next paragraph
Subscribe Today to the Monitor
The two companies also own a cross holding in Vodafone Italy, which could form part of the deal, with Verizon possibly selling its 23 percent back to Vodafone, which has 77 percent, sources told Bloomberg.
Charles Stanley analyst Tom Gidley-Kitchin said it was inevitable Verizon would make a serious approach.
"Vodafone doesn't have to sell, they are quite prepared to wait," he said. "I don't think Vittorio Colao is going to be bamboozled into selling at a sub-optimal price, so I think Verizon will understand they will have to pay closer to $130 billion."
Vodafone has changed its strategy from being a pure mobile operator to offering combined services such as television and fixed line broadband. To that end it has agreed to buy Kabel Deutschland for 7.7 billion euros.
The stake in Verizon Wireless has become increasingly valuable to Vodafone as its fortunes have waned in its core European markets.
But it has a strategy of wanting full control of its assets, and as the junior partner in Verizon Wireless, it has no control over the timing and level of dividends from the group.
Vodafone’s Colao said in May his reputation would rest on selling the stake at the right time and right price, and he would not bow to pressure to do any deal.
Verizon has been able to use the dividend as a lever to persuade Vodafone to sell. The company paid no dividends from the asset between 2005 and 2011, which at the time was viewed by analysts as trying to pressure Vodafone into doing a deal.
Verizon Wireless paid out a $7 billion dividend to its parent companies in June, indicating that they were on better terms than at earlier stages in the relationship.
The Wall Street Journal said significant shifts in financial markets, such as rising interest rates as well as changes in the U.S. cellphone business had brought the two sides closer together.
A Verizon representative declined to comment on the Bloomberg and Wall Street Journal reports.
Vodafone investors and analysts expect the company, which has $30.6 billion of debt according to Thomson Reuters data, to return a lot of the proceeds of a deal to shareholders, rather than embark on more M&A or paying down borrowing.
"We would expect them to distribute a very large proportion of the proceeds to shareholders," analyst Gidley-Kitchin said.
A disposal would change the investment case for Vodafone, as the group would be left with a mixture of low growth but cash generation in Europe and higher growth but less cash generating emerging markets, he said.
Analysts and investors have said that structuring the deal to ensure not too much tax was payable by the seller was a tricky issue.
"The tax leakage being rumored is $10 billion, which I think would be a good result for Vodafone holders," one of the 10 largest investors in the UK-listed telecoms company told Reuters.
Vodafone’s credit default swaps, which measure the cost of insuring against a default on its debts, fell 6 basis points to 70 basis points after the news.
RECOMMENDED: World's five largest companies