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Verizon acquires Vodafone’s stake in wireless unit
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Verizon Communications has agreed to pay US$130 billion to buy Vodafone Group out of its US wireless business, signing history’s third-largest corporate deal announcement to bring an end to an often tense 14-year marriage.
The deal in cash and stock will give Verizon full access to the profits from the United States’ largest mobile operator, handing it fresh firepower to invest in its mobile network and fend off challengers in a tough market that is fast becoming even more competitive.
For the British group, the accord will allow it to return 71 percent of the net proceeds — or US$84 billion including all of the stock — to shareholders while also ramping up investment in its networks to set itself apart from rivals.
The deal, in which Verizon will buy Vodafone’s 45 percent stake in Verizon Wireless, is the defining event in the careers of Vittorio Colao and Lowell McAdam, the chief executives of Vodafone and Verizon, respectively. They had succeeded in rebuilding relations between the two sides, long strained by clashes about the Wireless dividend and who would eventually seize full ownership.
McAdam said the two men had initially discussed the possibility of combining Verizon and Vodafone before deciding that the stake sale made more sense for both companies.
He said the companies realized they were close to a deal after they spent the morning together in a hotel in San Francisco, chatting while on the exercise bike in the gym and later over breakfast.
The deal’s code name was Project River. “We were Hudson, and they were the Thames,” he said, referring to rivers in New York and London.
Under the terms, Vodafone will get US$58.9 billion in cash, US$60.2 billion in Verizon stock, and an additional US$11 billion from smaller transactions in a deal that is due to close in the first quarter of next year.
Third-biggest deal
The deal will become the third-largest announced deal in the world after Vodafone’s US$203 billion takeover of Germany’s Mannesmann in 1999 and AOL’s US$181 billion acquisition of Time Warner the following year. Verizon has also managed to raise one of the largest-ever financing packages at US$60 billion.
“We think we have a balanced approach here,” Colao said, adding that he was “super committed” to the next chapter of the company. “We are reducing our debt level, which will enable the company to be very robust and take opportunities if they arise.”
McAdam said simply that the time was right to buy.
“I think there’s going to be a burst of rocket fuel in the Verizon engine as a result of this transaction,” he said. It was a self-funding transaction because Verizon’s earnings per share will immediately rise by 10 percent, excluding one-time items, he said.
But the extra huge new debt load on Verizon’s books may tie its hands on major investments, analysts said.
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