Verizon to buy Vodafone's 45% stake in Verizon Wireless for $130B

As had been expected, Verizon Communications (NYSE:VZ) and Vodafone reached an agreement in which Verizon will pay Vodafone $130 billion for its 45 percent stake in Verizon Wireless, capping a years-long saga that will give Verizon full control of its wireless operations and deliver a massive payout to Vodafone and its shareholders. 

The deal finally came together during the past month, and Vodafone confirmed the talks last week.

Verizon will pay for the deal via $60.2 billion in stock and $58.9 billion in cash, with the remaining $10 billion made up of other considerations, including Verizon's 23 percent stake in Vodafone Italia (worth $3.5 billion) and $5 billion in notes payable to Vodafone. Vodafone said the deal will trigger a U.S. tax bill of $5 billion. 

The deal will need to be approved by regulators in the United States and European Union and by both companies' shareholders. The transaction is expected to close in the first quarter of 2014, the companies said. Verizon has scheduled a conference call on Tuesday morning to discuss the deal. 

"This clearly weights the company more toward the mobile asset," Verizon Communications CEO Lowell McAdam said in an interview with the Wall Street Journal. "Over the last 10 years that's really been our strategy. We are continually investing in our wireless presence, and that's where the profitability of the company lands at this point."

McAdam has been working to resolve the issue of ownership of Verizon Wireless since taking the CEO spot in 2011. The ownership structure has been tangled since Verizon Wireless launched service in 2000. McAdam and Vodafone CEO Vittorio Colao met in a San Francisco hotel room to work out the initial terms of an agreement last month, according to the Journal.

Verizon Wireless recently paid a $7 billion dividend to the parent companies. In the second quarter Verizon Wireless' total wireless revenue clocked in at $20 billion, up 7.5 percent year-over-year. Wireless service revenues grew to $17.1 billion, up 8.3 percent from the year-ago period. The operator has consistently been one of the strongest items on Vodafone's balance sheet, which has been weighed down by units in Europe that have taken hits because of the continent's ongoing economic turmoil.

The deal comes as Vodafone is reworking its telecom strategy, which includes the recent purchase of German cable operator Kabel Deutschland in a $10.2 billion deal and the $1.8 billion purchase in 2012 of Cable & Wireless Worldwide. The actions are Vodafone's attempt to expand into additional telecom services beyond wireless and selling them via bundles. 

Analysts have said the deal will bolster Vodafone's balance sheet and allow it to focus on rebuilding its European operations. Vodafone has written down more than $37 billion from its European business in the past five years, according to the Journal. "The transaction will leave Vodafone in a strong financial situation," Colao said Monday on a conference call, according to Bloomberg.

For Verizon, the deal amounts to an extremely large bet on the future growth of the U.S. wireless industry, since the deal will not lead to reduced costs or other synergies. Verizon is essentially gambling on increased adoption of LTE services and data usage to help continue to fuel its growth. 

Meanwhile, rival AT&T (NYSE:T) is reportedly looking at Vodafone's remaining assets and other European wireless assets, according to Bloomberg. According to the Journal, AT&T CEO Randall Stephenson has told investors that the company has an interest in pursuing European carriers that would give its access to markets there, and the preferences he outlined indicated an interest in Vodafone's assets. AT&T has declined to comment on the speculation. 

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

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