Verizon Communications (NYSE:VZ) and Vodafone (NASDAQ:VOD) agreed Monday to buy out the latter‘s 45 percent stake in Verizon Wireless in a $130 billion transaction, realigning the global telecommunications landscape in one of the biggest deals on record.
The deal represents the end of a 14-year joint venture between the British and American companies, and is the culmination of years of speculation that Vodafone would sell its stake in Verizon Wireless, the largest cellphone operator in the United States. Vodafone will get $58.9 billion in cash, $60.2 billion in Verizon stock, and an additional $11 billion from smaller transactions in a deal that is due to close in the first quarter of next year, Reuters reports.
Under the deal, Vodafone shareholders will get 71 percent, or $84 billion, of the windfall profits in both cash and shares, The New York Times reports. That figure includes $60 billion of Verizon shares, which many Vodafone investors may look to offload, and a further $24 billion in cash.
The payout to investors was larger than many analysts had been expecting, and comes as many market observers still expect Vodafone to acquire other assets in Europe and emerging markets to keep pace with rival telecoms.
“After years of talks, we received an offer that was good value for shareholders,” Vodafone’s chief executive, Vittorio Colao, told reporters on Monday. “It was a good move for both partners and we were able to find the right price.”
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Colao said he was committed to the next stage in Vodafone’s history, Reuters reports.
"I am super committed to the next chapter of Vodafone, that is chapter three, after the creation and expansion into emerging markets, now we have data and unified services so I am very excited about the future," he told reporters when asked whether the deal was the pinnacle of his career.
He said the group would continue its disciplined approach to acquisitions and would invest in data infrastructure in Europe and emerging markets on a market-by-market basis.
The deal will become the third-largest announced deal in the world after Vodafone's $203 billion takeover of Germany's Mannesmann in 1999 and AOL's $181 billion acquisition of Time Warner the following year.
Verizon said it expected the transaction, which was approved unanimously by both boards, to be immediately accretive to earnings per share by about 10 percent, excluding any one-time adjustments.
After returning $84 billion of the sale proceeds to its shareholders, Vodafone will be left with a $30 billion cash pile. Some $10 billion will go to the Project Spring network investment program and the rest will be used to pay down debt, bringing down leverage to one times forward operating profit.
Both corporations said they would be in a position to increase their dividend. Verizon declared a quarterly dividend of 53 cents per share, an increase of 1.5 cents, or 2.9 percent, from the previous quarter. Vodafone announced an 8 percent increase to its total 2014 financial year dividend per share.
Vodafone will be left with a U.S. tax liability of around $5 billion.
Boutique M&A firm Guggenheim Partners advised Verizon on the deal, as did Paul Taubman, a former banker at Morgan Stanley, Reuters reported.
A group of banks - JPMorgan, Morgan Stanley, Bank of America Merrill Lynch and Barclays - will underwrite just over $60 billion in debt financing to fund Verizon's deal, sources earlier said.
Goldman Sachs and UBS advised Vodafone.
The deal comes at a delicate time for the industry, the Times notes. The U.S. wireless sector has seen a gradual slowdown in subscriber growth in the past few years, because many people who want a cell phone already have one. In the second quarter, the growth rate of the American wireless market was 2.2 percent — the first time it has ever fallen below 2.5 percent, Craig Moffett, an analyst for Moffett Research, told the Times.
Carriers have said newer devices like tablets would help drive growth. But Moffett said about 90 percent of the tablets that people are buying only connect to Wi-Fi networks, not cellular connections. For wireless carriers, other markets for potential growth include cars or home security systems. But it is unclear whether those revenue streams will drive much growth for the industry.
“All those futuristic visions are almost certainly real,” Moffett said. “The question is whether they are big enough to really move the needle for an industry the size of the U.S. wireless market.”