Verizon and Vodafone have finally announced a deal that’s at least three years in the making: Verizon is to pay Vodafone $130 billion for the British operator group’s 45 percent stake in Verizon Wireless.
The companies’ boards have given their approval and the transaction should close in the first quarter of 2014, Verizon and Vodafone said on Monday. As a result of the deal, Verizon gets to be more nimble with its mobile offering in the U.S. and Vodafone gets a huge pile of cash with which it can further its M&A ambitions in Europe.
More of that in a moment, but first, those obligatory quotes. From Verizon CEO Lowell McAdam:
“Over the past 13 years, Verizon Wireless has been a key driver of our business strategy, and through our partnership with Vodafone, we have made Verizon Wireless into the premier wireless provider in the U.S. The capabilities to wirelessly stream video and broadband in 4G LTE complement our other assets in fiber, global IP and cloud. These assets position us for the rapidly increasing customer demand for video, machine to machine and big data. We are confident of further growth in wireless, and our business in its entirety.”
And Voda CEO Vittorio Colao:
“This transaction allows both Vodafone and Verizon to execute on their long-term strategic objectives. Our two companies have had a long and successful partnership and have grown Verizon Wireless into a market leader with great momentum. We wish Lowell and the Verizon team continuing success over the years ahead.”
The $130 billion comprises: $58.9 billion in cash, $60.2 billion in Verizon shares, $5 billion in Verizon loan notes, $3.5 billion in the form of Verizon’s 23 percent Vodafone Italy minority interest, and $2.5 billion in Vodafone net liabilities, which Verizon will assume.
This deal has been quietly worked on for years, but until now Verizon and Vodafone have been unable to settle on a price. Another major sticking point has been Vodafone’s allergy to paying UK corporate tax, which it appears to have solved by ploughing the money into a Dutch holding company (cue alarm from tax fairness campaigners).
Vodafone said 71 percent of the proceeds ($84 billion) would go straight to its shareholders — that’s $1.74 per share. It also said it would implement an “organic investment program” called Project Spring, which will “establish further network and service leadership through additional investments of £6 billion ($9.4 billion) over the next three financial years.” This will involve more 4G network build-outs, an improvement of 3G coverage, more fiber deployments, more cloud for the enterprise market, more mobile payments services, and so on.
As for the remainder, the company has previously been clear that it wants to grow in the fixed-line space in Europe so that it can offer bundles of broadband, mobile and TV services. Vodafone has already revealed an intention to buy German cable provider Kabel Deutschland for $10.3 billion, and that deal seems to be going well on the regulatory clearance front. So who’s next? Vodafone wants to concentrate on its key European markets, and all the talk in the past few days has been of Vodafone buying Spain’s Ono or Jazztel, and/or Italy’s Swisscom-owned Fastweb.
There has also been a fair amount of rumor regarding a possible takeover of John Malone’s Liberty Global (worth around $30 billion), and Malone has suggested he would be amenable to an offer. However, Liberty Global owns UPC Germany, the second-biggest German cable operator after Kabel Deutschland, so regulators in that country would almost certainly nix such a deal.
Whatever happens, the Voda-Verizon divorce is finally happening, and it’s a huge relief to move past years of speculation.