Verizon, Vodafone Talking About $100 Billion-Plus Deal
Shares of Verizon Communications and Vodafone were higher on Thursday following the announcement the two companies were looking to deal. Vodafone announced it was in talks with Verizon to sell its stake in Verizon Wireless, the number one U.S. mobile carrier on the market. A deal of this size would be monumental for both companies, and in fact would be recorded as the third biggest deal of all time. Since 1994 the two companies have been in bed together so to speak. A number of twists and turns, mergers and acquisitions, and speculation created an interesting relationship over the last decade.
The street has predicted this day was coming for a number of months after speculation surfaced that Vodafone was looking to sell its stake within the company. As of today, Vodafone stands as the second largest cellphone carrier, only behind China Mobile which has emerged as a dominant force within Asia. The deal is said to be worth a whopping $125 billion in cash and stock. Some analysts have said any prospective deal would likely involve a cash-and-stock offer that would give Vodafone roughly a 30 percent stake in Verizon. Should the rumors be true the potential deal would be one of the largest worldwide in the last decade and even rival Vodafone’s $181 billion takeover of the German cellphone operator Mannesmann in 2000.
By selling these assets Vodafone stands to benefit in two major ways. The first, with the capital infusion the company would have the capital to invest heavily in its core European market to improve customer service. As high speed data technology improves, capital expenditures continue to soar. The second, the company could return this money to its shareholder base through large shareholder buybacks. As growth slows, shareholder buybacks may sustain reasonable earnings per share growth in the years ahead. The main concern at this point would be the tax bill hitting Vodafone following the sale. Cash strapped politicians across the globe are salivating at the thought of the bill.
The street likes the deal and apparently believes the rumors are true. Shares of Vodafone are up by more than 7.5% to $31.66 intra-day in the United States. Moreover, Verizon has caught a bid of its own; shares are up by more than 3.25% to $48 per share. Should the deal go through, Vodafone will still have a watchful eye on Verizon’s operations and strategy. A 30 percent stake in the company deserves significant representation on the company’s executive board.
Disclosure: The author has no position in any of the companies mentioned, and does not intend to initiate a position in the next 72 hours.
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