Verizon buys Vodafone's US joint venture for $130 bn

Verizon Communications Inc yesterday agreed to acquire Vodafone Group Plc's 45-per cent stake in their US joint venture Verizon Wireless for $130 billion, the third largest deal in corporate history, bringing an end to a 14-year alliance.

Simultaneously, Vodafone will acquire Verizon's 23-per cent minority interest in Vodafone Italy for $3.5 billion, securing full ownership of Vodafone Italy.

The British company would get $58.9 billion in cash, $60.2 billion in Verizon stock, and an additional $11 billion from smaller transactions in a deal that is due to close in the first quarter of next year.

The consideration comprises $58.9 billion in cash, $60.2 billion in Verizon shares, $5.0 billion in the form of Verizon loan notes, $3.5 billion in the form of Verizon's 23-per cent minority interest in Vodafone Italy and $2.5 billion through the assumption by Verizon of Vodafone net liabilities relating to the US Group, Vodafone said in a release.

The $5.0 billion Verizon senior unsecured floating rate loan notes are in two equal tranches with maturities of 8 and 11 years.

Vodafone will return 71 per cent of the net proceeds of nearly $84 billion to shareholders, including all of the stock, after the company completes the sale of its 45 per cent stake in Verizon Wireless to Verizon Communications for $130 billion.

After paying shareholders, creditors and meeting tax liabilities, Vodafone will be left with a $30 billion cash pile, of which, some $10 billion will go to Project Spring network investment programme.

The transaction will leave Vodafone with a US tax liability of around $5 billion.

The deal also effectively ends a 20-year expansion spree of one of the UK's best-known and dynamic companies through a spate of aggressive deals, taking its brand into more than 30 countries across Europe, Africa and India.

Vodafone, however, would be investing £6 billion from the proceeds to implement a new organic investment programme, Project Spring, to establish further network and service leadership, over the next three financial years.

The sale, unanimously approved by the boards of Verizon and Vodafone, will give Verizon full access to the wireless unit's operations, giving it full powers to invest in new mobile networks and fend off competition.

Subject to the satisfaction of certain conditions precedent, the transactions are expected to complete in the first quarter of 2014, Vodafone said.

Verizon will pay Vodafone a breakup fee of $10 billion if it cannot get financing for the deal, or $4.64 billion if Verizon's board changes its recommendation to shareholders to vote in favor of the deal.

On its part, Vodafone would pay Verizon $1.55 billion if its board changes its changes its recommendation to shareholders.

Either side would pay the other $1.55 billion if its shareholders turn down the transaction.

Vodafone would also pay the $1.55 billion if it gets an unfavorable tax ruling, which will make it too expensive to complete the deal.

The deal, once completed, will be the third-largest deal in the world after Vodafone's $203 billion acquisition of Germany's Mannesmann in 1999 and AOL's $181-billion take-over of Time Warner in 2000.

''Our sustained investment in Verizon Wireless has created a great deal of value for shareholders from a market leader with great momentum. Verizon's offer now provides us with an opportunity to realise this value at an attractive price,'' Vodafone Group chairman Gerard Kleisterlee said.

''The transaction will position Vodafone strongly to pursue our leadership strategy in mobile and unified communication services for consumers and enterprises both in our developed markets and across our emerging markets businesses,'' he added.

''As a result of the transactions, we will also greatly enhance Vodafone's long-term prospects through `Project Spring', our new programme of additional organic investments in 4G, 3G, fibre and broadband, enterprise services and improved customer experience across all of our markets,'' Vodafone Group chief executive Vittorio Colao said.

Verizon said it expected the transaction to be immediately accretive to earnings per share by about 10 per cent, excluding any one-time adjustments.

Verizon declared a quarterly dividend of 53 cents per share, an increase of 1.5 cents, or 2.9 per cent, from the previous quarter.

Vodafone also announced an 8 per cent increase to its total 2014 financial year dividend per share.

Launched in 2000 as a joint venture between Verizon and Vodafone, Verizon Wireless is the largest US wireless company, with 100.1 million retail connections as of the end of the second quarter of 2013.

It operates the country's largest 4G advanced wireless broadband network, which, as of July 2013, was available to 301 million people in 500 markets across the US. As of the end of the second quarter of 2013, the company had 73,400 employees and operated more than 1,900 retail locations in the US.

The New Jersey-based company reported $75.9 billion in operating revenues in 2012 and $39.5 billion in the first half of 2013. Operating income margin was 28.7 per cent in 2012 and 32.6 per cent in the first half of 2013.

Boutique M&A firm Guggenheim Partners and Paul Taubman, a former banker at Morgan Stanley, advised Verizon on the deal. Goldman Sachs and UBS advised Vodafone

Merchant bankers, including JPMorgan, Morgan Stanley, Bank of America Merrill Lynch and Barclays, are underwriters to the over $60 billion in debt financing to fund Verizon's deal.