Report: Verizon readies $100B bid for Vodafone's Verizon Wireless stake

Verizon Communications (NYSE:VZ) has hired advisers in advance of a possible $100 billion cash and stock bid for Vodafone's 45 percent stake in Verizon Wireless, according to a Reuters report.

The report, which cited two unnamed sources familiar with the matter, is the latest in a string of media reports speculating about the future of Verizon's relationship to Vodafone. Verizon executives have said Verizon is interested in acquiring Vodafone's stake in Verizon Wireless, but have said much of the speculation on the topic is premature.

The Reuters report said that Verizon has not issued a formal proposal to Vodafone yet but has hired both banking and legal advisers for a potential offer. Further, the report said Verizon wants to push aggressively for a deal now and is prepared to take a bid public if Vodafone does not engage. Verizon's board is expected to discuss the potential deal next week at a regularly scheduled meeting, the report added.

Vodafone declined to comment, according to Reuters. Verizon declined to comment but referred to an April 2 statement when it said it still has an interest in buying Vodafone's 45 percent stake in Verizon Wireless. In that same statement, Verizon said that it does not "currently have any intention to merge with or make an offer for Vodafone, whether alone or in conjunction with others."

Citing unnamed sources, the Financial Times had reported that Verizon considered buying Vodafone's 45 percent stake in Verizon Wireless while AT&T (NYSE:T) would take on Vodafone's non-U.S. assets in a deal valued at $245 billion. Verizon denied that report.

"With respect to Vodafone, obviously, we made a public announcement on April 2, and I would reference all of you back to that announcement," Verizon Communications CFO Fran Shammo said during Verizon's first-quarter earnings conference call in April 18. "Of course, as we've always said before, we are very interested in acquiring the 45 percent stake in Verizon Wireless that we don't already own." Shammo also said the company is "extremely confident that such a transaction could be accomplished in a manner that is very tax-efficient and would not result in a tax on the gain in that stake."

For now, all that's left for analysts to do is speculate about whether, when and for how much Verizon will buy Vodafone's stake in Verizon Wireless, which is seen as a much more likely scenario than any other kind of transaction.

"We doubt that [Vodafone management] or shareholders would be willing to sell for $100 billion; however, this is a good starting point for negotiations," wrote New Street Research analyst Jonathan Chaplin. "We believe a deal could be struck that would create significant value for both sets of shareholders. We continue to believe a deal is likely before year-end."

Analysts at Jefferies wrote that they think Vodafone management is comfortable with the status quo and that Verizon is "attempting to up pressure" on Vodafone. Vodafone CEO Vittorio Colao has said he has an open mind on whether to sell the group's 45 percent stake. The Jefferies analysts wrote that the deal's "valuation will need to climb to much higher to create an outcome acceptable to Vodafone shareholders in our view."

Analysts at CCS Insight said there are pros and cons to Vodafone in making a deal now. "If Verizon were to make an offer for the remaining shares in its joint venture, it would create a dilemma for Vodafone," they wrote. "On the one hand, Verizon Wireless provides a vital revenue stream at a challenging time for Vodafone. It continues to show excellent growth and is already capitalizing on its substantial investment in LTE."

"But on the other hand, a chance to shore up ailing European operations and to invest further in fixed-line assets could prove hard to turn down," they added. "Such investments could open significant revenue opportunities through converged services and would counter the increasing threat from cable providers."

Verizon Wireless paid an $8.5 billion dividend to its parent companies late last year, split along the lines of their stakes in the company. The payment was less than the $10 billion payment Verizon Wireless distributed in January 2012, which was the first time the carrier had paid out a dividend since 2005.

For more:
- see this Reuters article

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