Vodafone Group plc said it was in talks with Verizon Communications Inc to sell its prized stake in Verizon Wireless, the number-one US mobile carrier, in what would be the third-biggest deal of all time.
Verizon has made no secret of its desire to gain full ownership of a network that is growing at a rapid rate and generating billions of dollars in free cash flow.
But Vodafone’s chief executive Vittorio Colao has bided his time, waiting for the optimal moment to sell the 45 per cent stake in a deal that would leave the world’s second largest mobile operator with assets in Europe and emerging markets such as India, Turkey and Africa.
Verizon could pay $130 billion, Bloomberg reported late yesterday, and it is working with several banks to raise $10 billion from each to finance about $60 billion of the deal. An announcement could come as soon as Monday, two sources told the news agency.
Reuters reported in April that Verizon had hired advisers for a possible $100 billion bid, an opening gambit that analysts said was too low, putting the value of Vodafone’s holding nearer $120 billion.
The statement from Vodafone yesterday confirming talks sent its shares up nine per cent to a 12-year high of 207 pence as investors and analysts said a deal could finally be on the cards.
Vodafone’s credit default swaps, which measure the cost of insuring against a default on its debts, fell 6 basis points to 70 basis points. Shares in Verizon Communications were up 4.2 per cent in pre-market trading in New York.
The two companies also own a cross holding in Vodafone Italy, which could form part of the deal, with Verizon possibly selling its 23 per cent back to Vodafone, which has 77 per cent, sources told Bloomberg.
Charles Stanley analyst Tom Gidley-Kitchin said it was inevitable that Verizon would make a serious approach at some stage.
“Vodafone doesn’t have to sell, they are quite prepared to wait,” he said. “I don’t think Vittorio Colao is going to be bamboozled into selling at a sub-optimal price, so I think Verizon will understand they will have to pay closer to $130 billion.”
The only M&A deals bigger than that were Vodafone’s $203 billion takeover of Germany’s Mannesmann in 1999 and AOL’s $165 billion acquisition of Time Warner the following year.
Vodafone has changed its strategy from being a pure mobile operator, where revenues are under pressure from competition and regulation, to offering combined services such as television and fixed line broadband. To that end it has agreed to buy Kabel Deutschland for €7.7 billion.
The stake in Verizon Wireless has become increasingly valuable to Vodafone as its fortunes have waned in its core European markets.