Report: Verizon paid billions more for Vodafone's VZW stake than it wanted to

Verizon Communications (NYSE:VZ) paid billions more than it had initially wanted to secure partner Vodafone's 45 percent stake in Verizon Wireless, according to a Wall Street Journal article, but the company felt it could not pass up the opportunity to get full control of its wireless operations.

Although the $130 billion deal only truly came together over the past month, Verizon agreed to a final figure that was much higher than the $100 billion or so that it had believed Vodafone's stake was worth a few months ago, the report said, citing unnamed sources familiar with the company's thinking. The $100 billion valuation was floated this spring in media reports when speculation that a deal might come together started to percolate. The deal will require a substantial amount of debt financing, including as much as $50 billion in bonds, the report added.

However, the deal came together because it made sense strategically to Verizon, and because climbing interest rates and the heavy borrowing Verizon is doing to get the deal done pushed Verizon Communications CEO Lowell McAdam to strike the deal now, with Verizon in a strong financial position.

"The opportunity really crystallized because of the capital markets," McAdam said in an interview with the Journal. "It was really a perfect storm on the financial perspective on the positive side."

Vodafone CEO Vittorio Colao had waited patiently to clear up the relationship with Verizon, while milking Verizon Wireless as a valuable asset that contributed billions over the years to Vodafone's balance sheet. "It's a great asset; it's an asset with a fantastic team managing it," Colao said in an interview with Bloomberg TV. "We got the value that a good asset deserves."

Last fall, McAdam had dinner in New York with Gerard Kleisterlee, the chairman of Vodafone's board, and the thought then was to try to merge Verizon Communications and Vodafone, but that idea fell apart earlier this year when Verizon realized it didn't want to move into Europe, McAdam told the Journal.

The talk then turned to buying Vodafone's stake, and things picked up after McAdam and Colao hashed out initial terms in McAdam's hotel room in San Francisco. The Journal added that among the banks advising the companies, the companies were referred to by code names: Verizon was "Hudson," Vodafone was "Thames" and Verizon Wireless was "River."

McAdam said Tuesday the Vodafone deal will allow Verizon to more seamlessly pursue opportunities to expand mobile penetration through sectors such as M2M, cloud, and security, and that Verizon has wireline assets in places, including acquisitions of Terremark, Hughes Telematics and Cybertrust, to make that happen. The deal, he said, is "clearing the road, if you will, for us to aggressively go after these new market opportunities in a 'One Verizon' framework."

"In my view, we have yet to maximize the value that can be achieved by making our assets work together to solve customer needs," McAdam said.

For more:
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this separate Bloomberg article

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