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[Vodafone and Verizon] Vodafone’s extraordinary $160bn Verizon plan

Mobile phone group Vodafone has been considering a $160bn takeover bid for its American peer and partner, Verizon Communications — a deal that, if consummated, would rival AOL’s takeover of Time Warner and Vodafone’s earlier acquisition of Germany’s Mannesmann as one of the largest M&A transactions on record, FT Alphaville has learned.

Vodafone has not yet approached Verizon with the plan and sources cautioned that there is no certainty the British mobile group will pursue the idea. Nevertheless, the move would be aimed, squarely, at settling uncertainty over the future of Vodafone’s US mobile interests — acquiring the whole of Verizon as the route to buying the 55 per cent of its mobile division, Verizon Wireless, that Vodafone does not currently own.

The audacious plan has been discussed in recent weeks as Vodafone has considered whether to trigger a little-known put option it holds over part of its stake in Verizon Wireless — a move that, accompanied by an asset revaluation at the American company, could allow it to suck up to $20bn out of Verizon and distribute this to its shareholders.

The extreme alternative of bidding for Verizon would create a business capitalised at around $300bn — bigger than AT&T, currently the world’s largest telecoms business.

According to well placed financiers, in contemplating such a move, Vodafone has looked at a range of deal structures. These include a plan to buy the whole of Verizon and then simultaneously spin-off its fixed line interests to a private equity consortium. The company has also looked at whether it could part-fund the deal with the issue of a tracker stock for US investors.

If pursued, the private equity side deal alone, valued at around $90bn, would constitute the largest leverage buyout on record.

News of Vodafone’s ambitions — with its stubborn commitment to continued growth by acquisition — is likely to flummox critics who have pressed chief executive Arun Sarin to scale back expansion plans and focus instead on cash generation. Most recently, a growing group of rebel shareholders, including former Marconi boss John Mayo, has pressed for the sale of Vodafone’s 45 per cent holding in Verizon Wireless and the return of cash to investors.

Such a move on Verizon would also be seen as a risky and hugely expensive catch-up exercise in the US following the failed attempt to buy AT&T Wireless in 2004. After a fevered auction, that business was acquired by Cingular Wireless for $41bn.

An all-share deal for Verizon would be highly controversial amongst Vodafone shareholders, who in the past have had to digest some of the heaviest issues of new paper on record - culminating in the $183bn share issue used to buy Mannesmann in 2000.

At the same time, part financing a deal through an LBO of Verizon’s fixed line business, would test the world’s increasingly jittery credit markets, which would be asked to fund around $75bn of debt.

Nevertheless, Mr Sarin’s focus on the plan has been sharpened by the largely unpublicised put option agreement, whereby Vodafone currently has the right to demand that Verizon buy shares from it in Verizon Wireless worth up to $10bn. In assessing whether to exercise the put, which expires in the middle of next month, Vodafone has been re-evaluating its entire US strategy.

One option here has been to press Verizon into gate-crashing the $27.5bn deal hatched by Goldman Sachs’ private equity arm and TPG Capital to acquire Alltel Corp, the fifth largest mobile operator in the US — a deal on which shareholders still have to vote.

In the event that it were to exercise its put option, Vodafone has been working on the assumption that it could generate a tax free payment of $7.5bn from Verizon by reducing its holding in the mobile business to about 41 per cent. At the same time, a further $12bn tax-related payment to Vodafone could be triggered by an asset revaluation.

Paul Murphy and Neil Hume

Article Series - Vodafone and Verizon

  1. Vodafone's extraordinary $160bn Verizon plan
  2. The nitty-gritty on Vodafone/Verizon - I
  3. The nitty-gritty on Vodafone/Verizon - II
  4. The nitty-gritty on Vodafone/Verizon - III
  5. Markets live transcript 16 Jul 2007

This entry was posted by Paul Murphy on Monday, July 16th, 2007 at 11:05 and is filed under M&A, Capital markets, Private equity. Tagged with , . You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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Comments

  1. Jul 18   14:46 Posted by In the News: July 18, 2007 | AEJMC Membership Forum [report]

    […] Verizon rumored to become bigger than AT&T Although Vodafone Group denied a report by the Financial Times that it is weighing a $160 billion bid for Verizon Communications, the notion of a deal injected Wall Street with optimism and helped stocks mostly hold last week’s sizable gains…If completed, the buyout would create a telecom giant bigger than AT&T. […]

  2. Jul 18   10:57 Posted by an observer [report]

    Of course companies like Voda should consider their options - it doesn’t mean they have to act on the outcome of their musings. As a Voda shareholder, you’d be disappointed if they weren’t looking at options as to how to grow and expand.

  3. Jul 17   22:51 Posted by renaissance chambara | Ged Carroll » Blog Archive » Links for 2007-07-16 [del.icio.us] [report]

    […] Vodafone’s extraordinary $160bn Verizon plan […]

  4. Jul 17   4:50 Posted by what idiots you are [report]

    You got taken in by an arb seeking a quick boost in Verizon’s stock price. What next, alphaville?

  5. Jul 16   18:02 Posted by Certainly Is A LOT Of Money Out There [report]

    […] “The Financial Times reports that Vodafone is pondering a $160 billion acquisition of Verizon. Vodafone says yeah right. But a weak dollar could make the deal possible.” […]

  6. Jul 16   17:58 Posted by Paul Murphy [report]

    Drift God — I’ve got a thick skin (and tough ear-drums) but your implication that we are at best incompetent or worse criminal is unfair. These articles were not just printed willy-nilly! When we checked prior to publication we were told by a senior financier with close knowledge of Voda that our information (that a bid had been examined — not that it was about to be made) was “utter fantasy”.

    That was clearly misleading if not an outright lie — and so we have sought to demonstrate the extent of our knowledge with subsequent posts on the subject.

    Please — read the whole series before judging us.

    Murphy/Alphaville

  7. Jul 16   17:45 Posted by Another Reader [report]

    It is entirely possible that Vodafone would consider bidding for Verizon, and frankly it ought to. Any capital gains from a potential disposal of Verizon wireless would not occur, any offer by Vodafone would be made more attractive by strengthening sterling relative to the dollar. Combined the entities would be stronger and extract greater operational and strategic benefits. Just look at the Bear Stearns report on this from January this year, a nil premium merger would add 10% to Vod’s share price, including synergies would be nearer 15%. Of course this assumes friendly, which is the big assumption.

  8. Jul 16   17:17 Posted by Drift God [report]

    I am really surprised that financial editors and reporters are not regulated at all. These people have such power to influence the market with little accountability and no punitive consequences at all.

    All they need is an unnamed source Are anyone looking at the possible criminal gains that these people can generate for themselves with these false reports?

  9. Jul 16   17:01 Posted by Vodaphone mulls Verizon takeover | Prepaid Reviews [report]

    […] [The Financial Times […]

  10. Jul 16   16:33 Posted by » Vodafone: We’re not buying Verizon | Between the Lines | ZDNet.com [report]

    […] Vodafone said in a statement: Vodafone notes press speculation that it is considering a possible offer for Verizon Communications.  Vodafone wishes to make it clear that it has no plans to make such an offer. […]

  11. Jul 16   15:31 Posted by Paul Murphy [report]

    We will put some more up this story shortly.

    Note to A — They didn’t deny our story — they have jsut said they are not bidding. We would have included a comment from Vodafone — unfortunately the company were only ready to talk off the record in advance of publication. (Blame regulation.)

    Murphy/Alphaville

    ps — comments from Vodafone people most welcome!

  12. Jul 16   14:22 Posted by B reader [report]

    That last comment blatantly came from someone at Vodafone.

  13. Jul 16   13:27 Posted by A reader [report]

    How could you you possibly run such a key story without a company comment? You aren’t looking credible now with Vodafone flatly denying your story. Is the 3-hour fame really worth more than your credibility?

This post is closed to further comments.