Verizon Looking to Buyout Vodafone's Verizon Wireless Stake for a Cool $100B+
April 25, 2013 10:00 AM
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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. (
). That's because while America's top wireless carrier shares the name of its majority (55 percent) owner Verizon Communications Inc. (
), the UK-based Vodafone Group owns 45 percent of it.
I. Verizon Communications Aims to Complete Massive Buyout
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 Communications is willing to pay
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
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 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
American satellite television firm
), plus Deutsche Telekom AG's (
partially acquire MetroPCS
Communications Inc. (
) 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.
This article is over a month old, voting and posting comments is disabled
4/25/2013 1:23:27 PM
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.
"If a man really wants to make a million dollars, the best way would be to start his own religion." -- Scientology founder L. Ron. Hubbard
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