Vodafone confirmed it is in talks with Verizon Communications (NYSE:VZ) to sell its 45 percent stake in Verizon Wireless to Verizon, and reports pegged a potential deal with a value as high as $130 billion. Citing unnamed sources familiar with the matter, the Wall Street Journal said a deal could be completed within a week.
Vodafone confirmed it is holding talks on selling the stake but said in a statement that "there is no certainty that an agreement will be reached." Verizon declined to comment, according to Bloomberg.
Citing unnamed sources, Bloomberg reported that the carriers are in advanced discussions on a transaction worth around $130 billion. Verizon is working with several banks to raise $10 billion from each, or enough money to pay for around $60 billion of the deal, the report added.
Although the topic has been under discussion for years, the speculation grew more heated in April after reports about negotiations between the two carriers. The companies' talks reportedly broke down over a disagreement on the price Verizon would pay: Vodafone wanted $130 billion and Verizon was willing to pay $100 billion, the reports said. Verizon executives have consistently said the company would be interested in acquiring Vodafone's stake, without saying much beyond that.
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.
A combination of factors could be pushing the companies closer to a deal now, reports said, including rising interest rates, which could bump up the cost of financing the deal, and the prospect of increased competition in the U.S. market from Sprint (NYSE:S) and T-Mobile US (NYSE:TMUS).
Additionally, 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 2012 purchase of Cable & Wireless Worldwide. The actions are Vodafone's attempt to expand into additional telecom services beyond wireless and selling them via bundles.
A deal with Verizon would 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.
"Vodafone investors are expecting a fairly material payout," Paul Marsch, an analyst at Berenberg Bank in London, told the New York Times. ''They have been waiting for a very long time.''
"If the companies were to come to mutually agreeable terms, it would have to be predicated on starkly different outlooks for the U.S. business," Moffett Research analyst Craig Moffett wrote in a research note. "To justify closing one of the largest deals in history, Verizon has to strongly be of the view that the performance of the U.S. wireless market in general, and Verizon Wireless specifically, will remain at levels at least consistent with recent history long into the future. Vodafone, on the other hand, would have to be of the view that the U.S. wireless market is reaching an inflection point, with growth stagnating, recapitalized competitors driving down returns for others, and with Verizon Wireless unable to improve upon its already by far best-in-class performance."
- see this Vodafone statement
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this Reuters article
- see this NYT article
- see this separate WSJ article (sub. req.)
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Article updated on Aug. 29 at 1:50 p.m. ET with additional commentary.