Verizon Communications Inc. is poised to announce an agreement as soon as today to acquire Vodafone Group Plc (VOD)’s 45 percent stake in their wireless venture for $130 billion, capping its decade-long pursuit of full control of the biggest U.S. mobile-phone company.
The $130 billion price will be paid in a combination of cash and Verizon’s stock, Vodafone said in a statement, describing the talks as “advanced.” Verizon’s board (VZ:US) will vote on the terms of the agreement today, said a person familiar with the matter, asking not to be identified because the details haven’t been made public. Vodafone’s board has signed off on the deal, another person said.
For Verizon, complete ownership of Verizon Wireless will mean access to $21.8 billion in operating income to boost its network and fend off competition from Sprint Corp. (S:US) Japan’s Softbank Corp. bought Sprint this year and founder Masayoshi Son has pledged to make the third-biggest U.S. wireless carrier a stronger rival. The transaction will shore up finances for Newbury, England-based Vodafone as it tries to revive European businesses hurt by the region’s debt crisis.
“Verizon’s strategic flexibility should be enhanced to pursue more aggressive opportunities to create value within its wireline segment,” said Simon Weeden, an analyst at Citigroup Inc. in London, in a note to investors. “Verizon could try to architect itself as a wireless-plus-enterprise provider of telecom services.”
The acquisition will be structured almost equally between cash and shares and will include Verizon exiting its 23 percent stake in Vodafone Italia, according to two people with knowledge of the transaction, who asked not to be named because the deliberations are confidential.
JPMorgan Chase & Co., Bank of America Corp., Barclays Plc and Morgan Stanley are leading financing of just more than $60 billion in equal proportions, the people said.
Vodafone won’t itself take a significant stake in Verizon, two people with knowledge of the terms said. Instead, it will distribute the Verizon shares it receives to its own investors, reducing the amount it will pay out to shareholders in cash, they said.
Bob Varettoni, a Verizon spokesman, declined to comment.
Vodafone rose as much as 4.6 percent to 215.75 pence and traded 3.8 percent higher as of 10:02 a.m. in London, valuing the company at 103.7 billion pounds ($161.6 billion). Verizon slipped 0.9 percent to close at $47.38 on Aug. 30.
At $130 billion, almost Verizon’s entire market value, the purchase would be the biggest since Vodafone’s acquisition of Mannesmann AG in 2000 if it’s completed at that price. Based on announced values, it would rank third, after Time Warner Inc.’s combination with AOL and Vodafone-Mannesmann.
The agreement would bring to a close years of attempts by Verizon and Vodafone to resolve their relationship. In March, Bloomberg News reported the companies had discussed options ranging from a buyout of the venture by Verizon to a full merger of the two carriers.
Verizon, which owns 55 percent of Verizon Wireless and is led by Chief Executive Officer Lowell McAdam, has control over whether and when the unit pays its owners dividends. That leaves Vodafone, run by CEO Vittorio Colao, dependent on it for an important source of cash.
The stake in Verizon Wireless, with its industry-leading profits, has been a bright spot for Vodafone, which has lost about half of its market value since 2000, the year Verizon Wireless began service.
For Verizon, the decision to commit to one of the biggest acquisitions of all time reflects its confidence in the U.S. wireless market even as growth slows and competition intensifies. Like SoftBank (9984)’s Son and U.S. satellite-television tycoon Charlie Ergen, whose Dish Network Corp. is piling up wireless airwaves,McAdam is betting that demand for digital devices and services still has significant room to grow.
The challenge will be to keep Verizon ahead of rivals that have grown stronger, bulking up through mergers and acquisitions. SoftBank is funding a technology upgrade for Sprint to make it more competitive, and T-Mobile US Inc., forged from the merger this year between Deutsche Telekom AG (DTE)’s American unit and MetroPCS Communications Inc., is introducing more aggressive wireless prices and plans.
Verizon’s biggest rival, AT&T Inc., has also continued to scour the U.S. for mobile-phone assets, agreeing in July to buy prepaid carrier Leap Wireless International Inc. Yet AT&T is also beginning to look elsewhere for investments, saying this year that Europe may offer attractive options.
Verizon has depended on the steadiness of its wireless venture as it contends with a decline in landline customers, whom it’s trying to keep by investing in fiber-optic lines for high-speed Internet service. Wireless accounted (VZ:US) for 66 percent of Verizon’s 2012 revenue and almost all of its operating income. The carrier also relies on the mobile business to help fund its dividend, which amounted to about $5.2 billion last year.
The partnership with Vodafone originated in 1999 after the U.K. carrier outbid Verizon’s predecessor, Bell Atlantic, for AirTouch Communications Inc., then the world’s largest wireless company. After acquiring AirTouch, Vodafone agreed to combine its mobile assets with Bell Atlantic to create a nationwide U.S. network. Shortly after, Bell Atlantic merged with GTE Corp., creating Verizon Communications Inc. (VZ:US)
As Verizon Wireless went on an acquisition spree, buying spectrum and companies to become the biggest U.S. mobile operator, Vodafone went without a dividend payment from the business for years. When Vodafone finally received a payout last year, it was the first since 2005.
For Vodafone, the sale would cap Colao’s efforts to exit joint ventures where the carrier doesn’t have full control. In the past three years, Vodafone has divested stakes in French carrier SFR as well as holdings in Asia and Poland.
Vodafone would keep one of the earlier deal records. Its previous incarnation, Vodafone AirTouch Plc, spent more than 150 billion euros in 2000 to acquire Germany’s Mannesmann. Time Warner’s combination with AOL brought in $124 billion in cash and stock when the two combined near the end of the technology bubble in 2001.
The cash from the U.S. stake sale would give Vodafone the wherewithal to make acquisitions and expand into faster-growing regions and businesses. In June, Vodafone agreed to buy Germany’s largest cable company, Kabel Deutschland Holding AG, for $10 billion, part of a shift in strategy to sell combined wireless, fixed-line Internet and television services.
Vodafone was also considering an acquisition of Italy’s Fastweb SpA, people familiar with the matter told Bloomberg News in June.
Nick Read, head of Africa, Asia and the Middle East, has said Vodafone is looking for opportunities to get bigger in Africa, where profit is predicted to overtake southern Europe in a few years.
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