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Pending bid is Verizon Communications' second attempt to purchase Vodafone's stake

You might notice that whenever we report on news about Verizon Wireless we mention the Vodafone Group Plc. (LON:VOD).  That's because while America's top wireless carrier shares the name of its majority (55 percent) owner Verizon Communications Inc. (VZ), the UK-based Vodafone Group owns 45 percent of it.

I. Verizon Communications Aims to Complete Massive Buyout

A new report by Reuters suggests that may change with a brewing offer by Verizon Communications to buy out Vodafone's stake.  Experts predict the offer may reach well above $100B USD.  These experts say a 50-50 mix of cash ($50B USD cash) and stock (roughly 965m shares of VZ at current prices).  The company is reportedly confident it can raise the cash for the deal via bank financing.

The prospective deal is boosted by Verizon's high share prices.  Shares of Verizon Communications have risen 20 percent this year as it has performed well as rivals struggled.

A "top 40 Vodafone investor" is quote anonymously by the report stating, "I'd be delighted with $135 billion, but there's absolutely no way it will be $100 billion.  The guidance I have had from someone close to the company is that they are looking at $125-130 billion."

Verizon executives
Verizon Communications is willing to pay a lot for Vodafone's VZW stake.
[Image Source: Julie Jacobson/AP]

The report claims to have definitive knowledge that Verizon Communications has hired banking and legal advisors to craft the bid.  Vodafone is reportedly wary of taking a $20B USD capital gains tax hit on the buyout, so Verizon Communications may have to structure the deal in a tricky manner.  Sources say that Verizon's hired team estimates they could trim the tax hit to around $5B USD.

Verizon Communications reportedly is willing to arrange the deal in private with Vodafone executives, but if they don't bite it's also willing to take the deal public -- directly to Vodafone shareholders.

The deal will likely be discussed at Verizon's board meeting, which is to be held next week.

II. Gotta Know When to Hold Them, Know When to Fold Them

A top 15 shareholder told Reuters anonymously that they expect the company to give the lion's share of the sale directly to shareholders and not to horde it.  He or she comments, "I don't really see this as a surprise.  The talk about this deal has been quite intense recently.  They should look to return a large amount to shareholders, retaining a relatively small amount for deleveraging and bolt-on deals. I don't think shareholders would be pleased with Vodafone viewing any disposal proceeds as an acquisition war chest."

The Verizon Wireless stake is estimated to account for 75 percent of Vodafone's net worth, as Verizon Wireless has soared as king of the U.S. market, even as Vodafone's European units have struggled.  

Vittorio Colao, Vodafone's CEO, has expressed wariness about selling his company's crown jewels.  He faces a tough decision.  If he holds on to the stake longer he could get Verizon Communications to offer a bigger buyout and could also buy time for his European holdings to stabilize.  

Vodafone's CEO
Vodafone's chief faces a tough decision on whether to sell or hold out.
[Image Source: Sarah Lee/The Guardian]

On the other hand, completed or pending consolidations -- namely the buyout of Sprint Nextel Corp. (S) by either Japanese carrier Softbank Corp. (TYO:9984) or American satellite television firm Dish Network Corp. (DISH), plus Deutsche Telekom AG's (ETR:DTEapproved bid to partially acquire MetroPCS Communications Inc. (PCS) and merge it with the T-Mobile USA  -- may make the market more competitive.  If Verizon loses subscribers or even is viewed as having a weakening grip on the market, its value could slide.

Verizon Communications was created in 2000 by the merger of Bell Atlantic Mobile and GTE Wireless.  That merger ported a deal with Vodafone by Bell to invest $49.5B USD along with $40.5B USD from Vodafone to create a wireless network.

Four years later, Verizon Communications almost succeeded in buying out Vodafone's stake.  The deal was driven by Vodafone's bid to buy AT&T Wireless, a deal that would have forced it to divest from the Verizon Wireless stake.  Vodafone was hoping to rebrand AT&T Wireless as a "Vodafone" unit introducing its brand in the U.S. market.

But Cingular beat out Vodafone's bid.  The collapse of that deal also sunk the prospective stake sale in Verizon Wireless.  Now, almost a decade later, that sale may finally be on the eve of completion.

Source: Reuters

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By BRB29 on 4/25/2013 10:32:43 AM , Rating: 5
Now Verizon have more reasons to charge more.

RE: Great!
By othercents on 4/25/2013 10:46:04 AM , Rating: 3
And competitive reasons to charge less. Verizon can charge a premium however they are not the only player in the market and with pressure from Sprint and T-Mobile I suspect Verizon pricing will stay the same as they are now.

RE: Great!
By BRB29 on 4/25/2013 11:51:36 AM , Rating: 3
While other carriers are struggling, Verizon is making record sales and profit. If they own more of the market, then they have more control of the market. They have more resources to make their network better while others are struggling to stay in the black.

People would rather overpay for a product that works than find a bargain product that is flaky. Overall, Verizon services work much better than any other network but they also charge the most.

RE: Great!
By Samus on 4/25/2013 1:11:16 PM , Rating: 2
Of course they are making record profits. They have the Apple business model; charge A LOT.

RE: Great!
By Omega215D on 4/26/2013 2:30:01 AM , Rating: 2
Except subscribers usually get what they pay for as in more coverage wherever.

AT&T has a large network as well so Verizon isn't the only one. T-Mobile is in the process of building more towers and expanding coverage but may be limited considering their pricing scheme. Same with Sprint. Hopefully T-Mobile will give the top two a run for their money as they seem to be doing well with the roll-outs.

RE: Great!
By BRB29 on 4/26/2013 8:18:11 AM , Rating: 3
ATT is not as good as verizon. Some area they are better but most are not.

T-mobile is in the process or building more towers? every carrier is in the process of building more towers. Developing countries are always developing but they just never seem to catch up.

Sprint still have bad service and customer service overall. Even with record sales, they are still in the red.

Verizon also installs signal boosters/repeaters in tunnels and metros where signals are weak or nonexistent. The other carriers do it too but Verizon is the most widespread one. It makes a whole world of difference when your phone works everywhere you go.

RE: Great!
By Omega215D on 4/27/2013 11:03:52 PM , Rating: 2
I'm a Verizon subscriber and feel the same way. People fail to realize you get what you pay for, though in AT&T's case...

RE: Great!
By Reclaimer77 on 4/25/2013 5:18:38 PM , Rating: 2
People would rather overpay for a product that works than find a bargain product that is flaky. Overall, Verizon services work much better than any other network but they also charge the most.

Oh hell yes. I was with Sprint previously because of the unlimited bandwidth. However the service was horrible.

Verizon is like night and day. I have 4G practically all the time, and it's MUCH faster and more responsive than Sprint could EVER be. I was stuck in 3G most of the time with Sprint, but their 3G felt more like 1G. Phone call signal is also better across the board, and call quality is improved.

Sure I pay a bit more, so what? I get dramatically better value for my money. You could not pay me, or threaten me with a gun, and get me to go back to Sprint. What's the point of "unlimited" anyway when it's barely usable?

RE: Great!
By sigmatau on 4/25/2013 9:09:59 PM , Rating: 2
Verizon is good, but I don't think I'm ever leaving ATT. I should be a paid poster. I destroyed my GS2 within a year of my contract and they allowed me to get another phone with no upgrade fee or activation. I asked about what I would pay for another new phone now and only a year into the contract they offered me to pay only $100 extra instead of the $250. I get 20% off because of one of the companies that I work for. And their data is 2x faster than Verizon's. Now, Verizon may have more coverage, but I never drop below 2-3 bars anywhere except the very rural parts of my state that I rarely go to, or inside buildings which no carrier can alleviate.

I think ATT is slightly cheaper than Verizon. I used to have Verizon, but they couldn't get more than 1 bar of signal in my house in the third largest city in my state and I lived near downtown. After 8 years, same thing. I had a Nextel IDEN phone that would get 4 bars never mind ATT that gets 5 bars. Verizon's customer service is also POS quality. I'm guessing they have gotten better at that...

ATT gets a bad rep in large cities and I hope they have worked on that. But anywhere I have traveled, the data speed on ATT kills everything.

RE: Great!
By ebakke on 4/25/2013 10:46:55 PM , Rating: 2
I had a Nextel IDEN phone
Lol, you too eh? Those were the days... I remember being soooo stoked about tethering my i85 for 56k internet! Oooh! Ahhh!

RE: Great!
By Kiffberet on 4/26/2013 7:33:25 AM , Rating: 2
I own Vodafone shares in the UK, and Verizon Wireless is pretty much the only reason why. That puppy is a cash cow!

From a Verizon perspective, I'd also be a bit worried. Where do you find $100billion? Even borrowing $50B is going to saddle the company in debt. And with other operators in the US consolodating and upping their game, VW are going to need every penny to stay on top. Servicing huge debt is just going to hold them back.

The only people to win will be the Vod shareholders (who'd all sell up after they get a big windfall), and the top directors at Verizon, Verizon Wireless, and Vodafone. They'd walk away with millions each!!
Losers would doubtless be the long term shareholders (and pensions) of the remaining company...

RE: Great!
By tanjali on 4/25/2013 11:08:03 AM , Rating: 2
Throwing 100 Bil's even though they have majority stake?
No, they don't overcharge, at all.
Apple at least make sh!t.

RE: Great!
By kleinma on 4/25/2013 11:26:22 AM , Rating: 2
I don't even know what your comment is supposed to mean. What does Apple (a computer hardware/software maker) have to do with Verizon Wireless (a wireless telcom)?

Having a majority stake doesn't mean anything when you want to buy out the other side, other than there is less to buy out.

RE: Great!
By BRB29 on 4/25/2013 11:47:28 AM , Rating: 2
Owning more of a stock means you have more control over the company and less volatility since you own most of it.

RE: Great!
By kleinma on 4/25/2013 1:00:28 PM , Rating: 2
Sure but that doesn't give you any extra pull to buy out the other side. Especially if your offer is less than what the other side thinks their portion is worth.

RE: Great!
By mcnabney on 4/25/2013 1:23:27 PM , Rating: 2
Verizon has complete operational control over Verizon Wireless. Vodaphone does appoint the CFO of Verizon Wireless and enjoys getting a huge profit check every quarter.

The price at $100B+ doesn't make a whole lot of sense. Verizon doesn't gain much in the way of control by acquiring 100% of the company - they just get to keep all of the earnings.

Here, let's do some math with 1Q13 numbers.
The Wireless division had $19.5B in revenue.
EBITDA of $9.828B and $6.42B operating income margin.
They probably used $4B of that income to pay off debt, invest in the business, and make acquisitions. The other $2.4B was paid out to stakeholders, with getting a check for $1.1B for the quarter. So extend that over a year and call it $4.5B being paid to Vodaphone a year. Does it make financial sense to pay $100B to keep $4.5B a year?
It depends. If this is a cash and stock deal it would make sense, but would leave Verizon with little cash and a major stock owner that could complicate things. Tough call.

I personally think that Verizon and Vodaphone should spin the Wireless division off.

RE: Great!
By xti on 4/25/2013 4:15:18 PM , Rating: 2
this is DT....Apple is pointlessly in every conversation. Like teenage boys randomly mentioning a girls name that they want to bone.

RE: Great!
By retrospooty on 4/25/2013 1:11:09 PM , Rating: 2
"Now Verizon have more reasons to charge more."

Wewcome to the wowd of vewizon wiyawess. /FUDD

RE: Great!
By semiconshawn on 4/25/2013 2:44:13 PM , Rating: 2
They charge more because they can. Having Verizon is like having wifi everywhere including the basement (subfab) of my fab. Millions of their customers (me included) are willing to pay for the coverage. Ive had them all and there is just no comparison. That said if you live in a spot with great Att or Tmob (sprint just sucks) and you don't really travel you might save a couple of bucks a month. To me you give too much back for that small amount of dough....

RE: Great!
By retrospooty on 4/25/2013 3:10:38 PM , Rating: 2
True for the most part... Except international travel. Verizon is the best If you travel alot in the USA, not internationally. Verizon is the best in the USA for coverage overall... If you live in an area where the others are OK and dont travel much in the USA the others are fine and cheaper.

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