Verizon Wireless wants to buy out Vodaphone's stake for $100 billion
Verizon Wireless is eyeing a $100 billion bid to buy out Vodaphone's 45 percent stake in the company. Vodaphone investors and analysts have said that the $100 billion figure is too low for its share in Verizon Wireless.
London and New York
The two sources said Verizon was considering a 50:50 cash and stock bid for the 45 percent stake it does not already own, an asset it has long coveted but that Vodafone will take some persuading to give up. It has not put a proposal to Vodafone yet but has hired both banking and legal advisers for a possible offer, the sources said.
Vodafone investors and analysts said the $100 billion figure was too low and more of an opening gambit to bring the British firm to the table. Shares in Vodafone, the world's second largest mobile operator, were up 2.6 percent at 198 pence.
"I'd be delighted with $135 billion, but there's absolutely no way it will be $100 billion," one top 40 Vodafone investor said on condition of anonymity. "The guidance I have had from someone close to the company is that they are looking at $125-130 billion."
Verizon, which has made little secret of its wish to buy out its British partner from the biggest U.S. mobile operator, has ramped up the pressure in recent months, saying publicly that it believed it could buy the asset in a tax-efficient way.
The two sides have previously held high-level talks to discuss options that ranged from a stake sale to a full merger and how any deal could avoid incurring a possible $20 billion capital gains tax for Vodafone, another person familiar with the situation has told Reuters.
The two sources who spoke to Reuters late on Wednesday said any deal would be structured such that the eventual tax bill would likely be $5 billion or less.
The two sources said Verizon was now ready to push more aggressively. It hopes to start discussions with Vodafone soon for a friendly agreement but is prepared to take a bid public if the British company does not engage, one of the sources added.
"I don't really see this as a surprise," one of Vodafone's 15 largest investors told Reuters, on condition of anonymity. "The talk about this deal has been quite intense recently.
"They should look to return a large amount to shareholders, retaining a relatively small amount for deleveraging and bolt-on deals. I don't think shareholders would be pleased with Vodafone viewing any disposal proceeds as an acquisition war chest."
Vodafone Chief Executive Vittorio Colao has so far said he has an open mind on whether to sell the group's 45 percent stake, which has come to make up around 75 percent of the firm's value in recent years as its core European business suffered.
Some analysts believe the Italian, who has won praise for his dealmaking in almost five years at the top of the group, could try to hold on to the asset for a little longer, until he sees some sign that his core European businesses are starting to stabilise.
But Colao will also know that the U.S. market could become more competitive due to a wave of consolidation, so he could decide that it might soon be the right time to walk away.
"The tax problem has always been the issue. If a way can be found around that, then it is highly likely that a deal will be done," the top-15 investor said.
Another way to avoid the tax issue would be for the two parent groups to merge, but Verizon said earlier this month that it was not looking to buy or merge with its partner.
Verizon, which is benefiting from record low interest rates as well as its own strong stock price, is instead confident that the company can raise about $50 billion of bank financing, the sources said. It plans to pay for the rest of the deal with its own shares, they added. The sources asked not to be named because the discussions are confidential.
Verizon's board is expected to discuss details of a potential Verizon Wireless buyout next week at a regularly scheduled meeting being held ahead of the company's annual shareholder meeting, one of the sources said.
Verizon spokesman Bob Varettoni declined to comment, but pointed to the U.S. telephone company's statement earlier this month, in which it said it would be a willing buyer of Vodafone's share of their Verizon Wireless venture.
Vodafone declined to comment.
Analysts have said a sale of Verizon Wireless would enable Vodafone to return cash to shareholders, purchase fixed-line assets in Europe or potentially make the company an attractive takeover target for other telecom giants such as AT&T Inc.
Shares in Vodafone have risen 26 percent this year on speculation that it could finally be ready to sell its stake, but most analysts had put the value of the Vodafone holding at nearer $120 billion.
Taking full ownership would give Verizon, which is reliant on the unit for growth, a lot more flexibility with the cash generated from the wireless business.
Analyst Jonathan Chaplin at New Street Research, said a deal at $100 billion would boost Verizon's earnings per share in 2014 by 33 percent.
"We doubt that Vodafone management or shareholders would be willing to sell for $100 billion; however, this is a good starting point for negotiations," he said in a note. "We believe a deal could be struck that would create significant value for both sets of shareholders."
Verizon came close to doing a deal in 2004, when Vodafone tried to buy AT&T Wireless but lost the auction to Cingular. That deal would have allowed Vodafone to bring its brand across the Atlantic and would have required it to sell its 45 percent stake in Verizon Wireless.
Any deal now, if it were to happen, would come at a time when the telecommunications industry is undergoing a fresh round of consolidation activity. MetroPCS Communications Inc shareholders voted on Wednesday to approve a merger with No.4 U.S. wireless service provider T-Mobile USA, a unit of Deutsche Telekom AG.
An earlier attempt by Deutsche Telekom to sell T-Mobile to AT&T for $39 billion in 2011 was blocked by U.S. antitrust regulators. Verizon would be unlikely to face any such obstacles in a Verizon Wireless buyout.
Meanwhile, Dish Network Corp, the No.2 U.S. satellite TV provider, last week offered to buy wireless service provider Sprint Nextel Corp for $25.5 billion in cash and stock, challenging a proposed deal between Sprint andJapan's SoftBank Corp.
Verizon's shares have risen about 20 percent so far this year as Wireless has been easily outperforming its smaller rivals in terms of profitability and customer growth, and on rising hopes of a buyout.
Verizon shares are valued at 17.9 times forward earnings, compared with 11.8 for Vodafone. (Reporting By Soyoung Kim and Sinead Carew in New York, and by Kate Holton and Sinead Cruise in London.; Editing by Paritosh Bansal, Martin Howell and Will Waterman)