Verizon Communications was poised yesterday to take full control of its US wireless business in a $130 billion (R1.3 trillion) deal to buy out Vodafone and end a decade-long corporate stand-off.
Vodafone, the 65 percent shareholder of South Africa’s largest cellular operator, Vodacom, said late on Sunday it was in advanced talks with Verizon to sell its 45 percent stake in the Verizon Wireless joint venture for cash and common shares in what would be the third-largest deal in corporate history.
An announcement was expected after the close of the London stock market yesterday and after the board of Verizon, the biggest cellular operator in the US, met to vote on the proposed transaction.
Vodafone’s board had voted in principle to back the deal, a source familiar with the situation said.
The move to sell Verizon shares closes a heady expansionist chapter for Vodafone, which grew rapidly over the past 20 years through a spate of aggressive deals, taking its brand into more than 30 countries across Europe, Africa and Asia. The world’s largest deal, a $203bn hostile takeover of Germany’s Mannesmann in 2000, made Vodafone the company it is today.
The new Vodafone will be smaller, less profitable and more reliant on its core, mature European assets, but it is expected to use the windfall to rebuild via smaller acquisitions and higher network investments. Speculation has already begun that the 31-year-old company could itself become a bid target, and news of the pending deal sent its shares up 4 percent to a more than 12-year high in London trade yesterday.
Under the terms of the proposed deal, Vodafone would get $60bn in cash, $60bn in Verizon stock, and another $10bn from smaller transactions that would take the total deal value to $130bn, two sources said.
To fund the cash portion, Verizon has lined up $65bn in financing from four banks: JPMorgan Chase, Morgan Stanley, Barclays and Bank of America Merrill Lynch. The banks have committed to the financing, which is expected to be split evenly among the four.
The news follows years of speculation as to when and whether Vodafone, the world’s second-largest cellular operator, would exit the highly successful business. Vodafone entered the US in 1999 through a series of deals that resulted in the formation of Verizon Wireless in 2000.
The partnership has been fraught with difficulties, with both partners at times seeking to buy out the other. Vodafone has received £7.4bn (R118bn) from the US business, helping it to return £23bn in total to shareholders in the past three years and making it a must-have stock for funds and pension groups around the world.
The cash also helped the UK group mask the pressure it was under in Europe, where its assets have been hit by recession and regulation. Full-year results to March showed that more than half of the group’s adjusted operating profit came from Verizon Wireless.
South African analysts say the deal and the resultant windfall may not yet have direct advantages for Vodacom, which funds growth off its own balance sheet, or implications for its rival MTN.
“The most likely impact would be… on the basis of there being less pressure on Vodacom to deliver returns to head office and give it greater capacity to invest locally,” said Arthur Goldstuck, the managing director of technology consultancy World Wide Worx.
Ovum senior enterprise analyst Richard Hurst said there was much speculation that Vodafone would focus on emerging markets.
He said that in terms of the enterprise services side of the market “the war chest will imply that the operator will be able to fast-track the roll-out of sophisticated services in those countries where they have a presence”.