Verizon deal with Vodafone may happen next week

It looks like there will be many bankers, lawyers and business reporters working during the holiday weekend as talks between Verizon and Vodafone have started again. It’s a small price to pay for bragging rights to putting together the second-largest buyout of all time.

Here are some of the details from the Wall Street Journal:

After years of attempts to fully own the U.S.’s top cellphone carrier, Verizon Communications Inc. is on the verge of buying Vodafone Group PLC’s 45% stake in Verizon Wireless for as much as $130 billion, in what would be the second-biggest deal of all time.

The acquisition could be completed within a week, according to people familiar with the matter. Verizon and Vodafone have yet to agree on a price, the people said. But in a sign that the on-again, off-again talks, which were rekindled this summer, have reached a more serious level, one of the people said Verizon is in discussions with banks over the tens of billions of dollars in loans it would need to complete the deal.

Verizon has sought for years to buy out Vodafone’s stake in their U.S. wireless venture, but the companies have never been able to agree on price. They remained far apart earlier this year, with Verizon looking to pay around $100 billion and Vodafone hoping for more like $130 billion, people familiar with the matter said at the time.

The New York Times added this context about the extremely competitive mobile phone market and what Verizon might stand to gain for having complete control:

Analysts say Verizon’s purchase of the 45 percent of Verizon Wireless it does not already own would help the company to dictate strategy as it looks to invest billions of dollars in high-speed data infrastructure.

Verizon is still the No. 1 cellphone carrier in the United States by market share, but it faces formidable competition from AT&T, the No. 2 carrier. The smaller carriers, Sprint and T-Mobile USA, offer lower-cost phone and data plans to try to compete, but to little avail — AT&T and Verizon still account for two-thirds of overall subscribers.

The wireless business, one of the most lucrative in the world, is crucial to the American economy. Worldwide, the wireless industry, already worth $1.6 trillion, is expected to become a multitrillion-dollar market in the next decade, said Chetan Sharma, an independent telecom analyst that does consulting for carriers. With already 10 billion connections worldwide, the number of cellular subscriptions is on track to outgrow the human population.

For Verizon, the challenge will be proving to investors that there will be financial benefits to having complete ownership of its wireless unit. The company already owns 55 percent, so assuming full ownership will not allow it to gain new assets as a typical acquisition would.

The deal would unlikely have any meaningful effect on Verizon customers. In theory, having complete ownership of the wireless venture would allow Verizon to integrate the two businesses more tightly, which might lead to better deals on bundles with wireline and wireless products, said Jan Dawson, a telecom analyst for Ovum. However, Verizon and Vodafone have already been doing combined marketing for years, he said.

Bloomberg reported that Vodafone also needs the transaction in order to execute on their long-term strategy:

At $130 billion — almost Verizon’s entire market value — the deal would be the biggest since Vodafone’s acquisition of Mannesmann AG in 2000 and would give the U.K. carrier’s finances a boost as Chief Executive Officer Vittorio Colao, 51, tries to revive its European businesses hurt by the region’s debt crisis.

As part of the transaction, Verizon will probably sell back to Vodafone its 23 percent stake in Vodafone Italia, which could be worth about 4 billion euros ($5.3 billion), said two of the people.

In a statement, Newbury, England-based Vodafone said there’s “no certainty that an agreement will be reached” as it holds discussions with New York-based Verizon. Bob Varettoni, a spokesman for Verizon, declined to comment.

“This deal is extremely important for Vodafone for their convergence strategy toward more cable assets because pure mobile operators will certainly experience capacity bottlenecks in the future,” said Leopold Salcher, an analyst at Raiffeisen Capital Management, calling $130 billion “a very good price.”

Verizon, led by 59-year-old Lowell McAdam, climbed 3.6 percent to $48.25 in New York. It had a market capitalization of $133 billion as of yesterday’s close. Vodafone rose 8.7 percent to 205.85 pence at 2:44 p.m. in London. The company has a market value of 99.7 billion pounds ($155 billion).

“It’s certainly a good deal for Vodafone,” said Craig Moffett, an analyst at Moffett Research LLC in New York. “It’s probably good news for Verizon as well. This gives them much better growth and it gives them much better dividend coverage, and it’s almost certainly going to be accretive to earnings.”

Verizon and Vodafone have for years tried to resolve their relationship. In March, Bloomberg News reported the companies have discussed options ranging from a buyout of the venture by Verizon to a full merger of the two carriers. Verizon, which owns 55 percent of Verizon Wireless, has control over whether and when the unit pays its owners dividends.

The giant deal could clear up the lines of control for wireless networks in several countries and give both companies more control of various ventures. Coming to terms on the price has been a sticking point in the past, so it will be interesting to see if executives can agree this time. One thing is certain, a weekend of relaxation for many just became a working one.