Vodafone Vodafone has sealed a $130 billion deal with Verizon Communications Verizon Communications that will see the British telecom sell its stake in the wireless business jointly owned by the two companies, the culmination of talks stretching back years and the latest shift this year within the rapidly changing and consolidating telecom industry.
Assuming full ownership will give Verizon complete access to the wireless unit's profits, a windfall that'll allow it to build new mobile networks and contend with an increasingly competitive landscape. For sure, connecting smartphones and tablets to the Web is immensely profitable. Verizon Wireless, the largest U.S. cell phone service provider with 98.9 million subscribers, compared with No. 2 AT&T AT&T's 77.9 million, made $21.8 billon on $75.9 billion in revenue last year. More to the point, it is a growing opportunity for Verizon, while its older landline business continues to decline.
For Vodafone, the sale is a way to reward long-suffering shareholders who watched the company's market capitalization shrink in the 14 years since Vodafone and Verizon hooked up to create the wireless unit. Vodafone investors will get 71% of the proceeds, some $84 billion, of the sale's profit in cash and stock.
While the marriage between Vodafone and Verizon appeared bright at first, relations dimmed quickly. Disputes occurred over who would eventually take full control and the rich dividends payed out by the wireless unit. The two parties had come to the negotiating table before today, but couldn't settle on terms. Another complicating matter was the potential tax hit that Vodafone would take on the sale.
Looking ahead, Vodafone may look around to see where it can expand–and what it needs to shore up. Vodafone's European business faces a tough environment amid recession and increased regulation. It does plan to use some of its newly full warchest to launch what it's calling Project Spring, a campaign to improve networks in Europe and in emerging markets.
At the same time, the deal comes at a crucial moment for Verizon. Interest rates are rising, and Verizon's stock in the past 12 months hasn't kept pace with the broader market. It might've seemed now or never to ink the deal. In addition, competition is likely to reach new highs: Japanese SoftBank a few months ago beat Dish Network in the takeover battle for the third largest U.S. carrier Sprint, and T-Mobile and Metro PCS have merged. Getting together or selling out represents the best chance for many of the smaller carriers to compete with their bigger rivals.
Completing the deal with Verizon will again Vodafone a place in history books. Vodafone has now orchestrated two of the largest M&A deals ever: its takeover of German Mannesmann in 2000 was the largest ever at $202.8 billion, which edges ahead of what's known as the worst deal in history, the $181.6 billion merger of AOL AOL and Time Warner. The sale of Verizon Wireless ranks as the third.
Reach Abram Brown at abrown@forbes.com.
No comments:
Post a Comment