Verizon, Vodafone Boards Set To Vote On $130 Billion Wireless Deal

The boards of Verizon Communications and Vodafone Group Plc are expected to vote this weekend on a $130 billion deal, funded by about $65 billion of debt, to give the U.S. telecom giant complete ownership of Verizon Wireless, people familiar with the matter said on Saturday.

A deal, which the sources said could be announced as soon as Monday, would cap Verizon’s decade-long effort to win full control of the No. 1 U.S. wireless provider.

At $130 billion, it would be the third-largest corporate acquisition of all time and mark British telecom giant Vodafone’s exit from the large but mature U.S. market. Vodafone owns 45 percent of the Verizon Wireless joint venture that was formed in 2000.

Verizon Communications and Vodafone declined to comment.

Verizon plans to pay for half of the purchase with its own stock, the sources said. For the rest, it has tapped JPMorgan Chase & Co, Morgan Stanley, Barclays Plc and Bank of America Merrill Lynch to help raise the funds through a mix of bonds and bank loans, the sources said.

The banks are joint lead arrangers of the financing, with JPMorgan and Morgan Stanley serving as global coordinators, the sources said. The four banks are also advising Verizon, along with former Morgan Stanley banker Paul Taubman and Guggenheim Partners, the sources said.

Taubman, the former co-president of Morgan Stanley’s institutional securities business and a top dealmaker, left the Wall Street firm earlier this year after 27 years there.

Goldman Sachs Group Inc and UBS AG are advising Vodafone, the sources said.

Goldman Sachs declined to comment, while the other banks were not immediately available for comment.

Since Verizon, led by Chief Executive Lowell McAdam, already had operational control of the wireless company, the deal is not expected to create any changes for its customers, but its additional financial firepower could help the company boost its service going forward.

After the deal, Vodafone, the world’s second largest mobile operator, will have assets in Europe and emerging markets such as India, Turkey and Africa. But it raises questions about what the company will do with the windfall. Top investors in Vodafone contacted by Reuters earlier this week were split between those wanting to see the cash returned as dividends and those wanting the firm to invest it.

A deal would come amid a spate of consolidation attempts, both successful and failed, in the telecom industry over the past few years. Most recently, Japan’s SoftBank Corp took control of Sprint Nextel Corp, the No. 3 U.S. wireless provider, in a $21.6 billion deal. In a related plan, Sprint agreed to buy out the portion of wireless company Clearwire Corp that it already did not own.

ON AGAIN, OFF AGAIN

An agreement over Verizon Wireless would mark the culmination of on-again, off-again discussions going as far back as 2004, when Vodafone bid for AT&T Inc’s wireless business and would have had to shed its Verizon Wireless stake. The British company, however, lost that bid to Cingular, and has since held on to the Verizon Wireless stake for its exposure to the U.S. wireless market.

The news of Verizon’s latest efforts was first reported by Reuters in April. At the time, sources said Verizon had hired advisers to prepare a $100 billion cash and stock bid to take full control of Verizon Wireless. Verizon was ready to push aggressively but preferred a friendly deal.

But Vodafone Chief Executive Vittorio Colao was biding his time, making it clear he would only sell the 45 percent stake at what he considered the right price.

Talks picked up in earnest a few weeks ago, however, as Verizon grew concerned that its window of opportunity may be closing, with interest rates going up and its own stock declining, one of the sources said. Verizon’s stock fell more than 4 percent in August.

That prompted Verizon to raise the offer price from the $100 billion it had initially envisioned to around $130 billion, sources have said.

Even after the bump in price, the deal is expected to be accretive to earnings, the source said.

With 2012 free cash flow of $28.6 billion at Verizon Wireless, RBC Capital Markets analyst Doug Colandrea said earlier that Verizon has the ability to rapidly repay the debt raised to fund the deal.

TAX BILL

Another hindrance to a deal has been the possibility of a huge tax bill for Vodafone from the sale, based on the massive growth Verizon Wireless has experienced since it was established. But the sources said the deal would be structured in such way that Vodafone’s tax bill could be cut to around $5 billion.

Verizon Communications will buy Vodafone’s U.S. holding company, Vodafone Americas, that owns the Verizon Wireless stake and some other assets, the sources said. Verizon will then keep the Verizon Wireless stake and sell European assets back to Vodafone, they said.

Since the seller of Vodafone Americas would not be a U.S.-based entity, no U.S. capital gains tax would be due, tax experts have said. And Vodafone may be able to take advantage of Britain’s substantial shareholdings exemption on the money it repatriates. The clause, under certain conditions, exempts from UK corporation taxation any gains realized when one company disposes of shares in another company.

Source : Reuters