Verizon poised for historic $130 billion Vodafone deal

Written by Reuters | London | Updated: Sep 2 2013, 21:37pm hrs
Verizon CommunicationsVerizon Communications was poised on Monday to take full control of its US wireless business with a $130 billion deal to buy out Vodafone and end a decade-long corporate standoff. (AP)
Verizon Communications was poised on Monday to take full control of its US wireless business with a $130 billion deal to buy out Vodafone and end a decade-long corporate standoff.

The British firm said late on Sunday 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 expect a full announcement to come after the London stock market closes on Monday, and after the board of Verizon meets to vote on the proposed transaction for the biggest mobile operator in the United States.

The move to sell Verizon closes a heady expansionist chapter for one of Britain's most famous companies, which grew rapidly over the last 20 years through a spate of aggressive deals to take its red brand into more than 30 countries across Europe, Africa and India.

The world's largest deal, a $203 billion hostile takeover 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 Vodafone 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 early 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 be split evenly among the four, two people said.

INCREASING PRESSURE

The news that the two sides are nearing a final agreement follows years of speculation as to when and whether Vodafone, the world's second largest mobile operator, would exit the highly successful business.

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 in times of weakness.

Verizon at one point withheld dividends from Vodafone for six years in an effort to force the British group out of the company, a stance that was first 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 US, a growing market that boasts high margins and high prices compared with Europe.

For Verizon, a deal means it no longer has to share the billions in cash generated by Verizon Wireless and will in the long run be better able to compete in a country that looks set to turn more competitive.