Post date: Sep 02, 2013 12:35:28 PM
Verizon Communications is poised to finally take full control of its U.S. wireless business with a $130 billion deal that would buy out Vodafone and bring an end to a decade-long corporate stand-off.
NEW YORK CITY, NEW YORK, UNITED STATES (REUTERS) - Vodafone late on Sunday (September 1) said it was in advanced talks with Verizon to sell its 45 percent stake in the Verizon Wireless joint venture for cash and common shares in what would be the world's third-largest deal of all time.
People familiar with the situation told Reuters they expected a full announcement after the Londonstock market closes on Monday (September 2), and after the board of Verizon meets to vote on the proposed transaction for the biggest mobile operator in the United States.The Vodafone board has voted in principle to back the deal, one person familiar with the situation said.
The move to sell Verizon closes a heady expansionist chapter for Vodafone, one of Britain's best-known companies, which grew rapidly over the last 20 years through a spate of aggressive deals, taking its brand into more than 30 countries across Europe, Africa and India.
The world's largest deal, a $203 billion hostile take-over of Germany's Mannesmann in 2000, made Vodafone the company it is today.
The new Vodafone will be smaller, less profitable and more reliant on its core, mature European assets but it is expected to use the windfall to rebuild via smaller acquisitions and higher network investments.
Speculation has already begun that the 31-year-old company could itself become a bid target, and news of the pending deal sent its shares up 4 percent to a more than 12-year high in London trade on Monday.
Under the terms of the proposed agreement, Vodafone would get $60 billion in cash, $60 billion in Verizon stock, and an additional $10 billion from smaller transactions that will take the total deal value to $130 billion, two of the people familiar with the matter have told Reuters.
To fund the cash portion of the deal, Verizon has lined up as much as $65 billion in financing from four banks: JPMorgan Chase & Co , Morgan Stanley, Barclays Plc and Bank of America Merrill Lynch, they said. The banks have committed to the financing, which is expected to be split evenly among the four, two people said.
BGC Partners market strategist Michael Ingram says Vodafone shareholders want a big slice of the cake, with caution:
"Shareholders are banging on the doors, they want a very large slice of that cash pile, probably at least 50% of it. On the other hand, if they shrink the company too much it itself becomes a target for acquisition, there was some talk late last week of AT&T sniffing around a smaller Vodafone. On the other hand you know they don't want to blow it all on some ridiculous acquisition. There was some talk that they were looking to expand their triple and quad play offer, there was obviously the Kabel Deutschland acquisition in July, maybe even looking at Liberty Global what was chatter. This could start a whole merry-go-round of M&A across Europe and the U.S."
ETX Capital Markets market strategist Ishaq Siddiqi said the money should go back into Vodafone:
"Yeah I think for Vodafone exits the shareholders are going to urge the company to start putting that money to work. 130 billion dollars is a lot of money for Vodafone, in fact the companies now, the market cap currently stands at 152 billion dollars after this proposed deal. Now in terms of how to make that money work, it's going to have to go back into the company, they're going to have to pay back an enormous amount of debt."
Vodafone entered the United States in 1999 through a series of deals that resulted in the formation of Verizon Wireless in 2000, with Verizon Communications holding 55 percent of the company and Vodafone the rest.
But the two sides clashed almost immediately and the partnership has over the years been fraught with difficulties, with both partners at times seeking to buy out the other.
Verizon at one point withheld dividends from Vodafone for six years in a bid to force the British group out. Those efforts were resisted by Arun Sarin, who led the company from 2003 to 2008, and then by current boss Vittorio Colao.
Their resistance, often in the face of investor demands for a sale, may prove to have been a masterstroke. Verizon Wireless became the largest operator in the United States, a growing market that boasts higher margins and prices than in Europe.