An employee holds an iPhone for a customer at a Verizon store in Boston, Massachusetts.
NEW YORK/LONDON: Verizon Communications Inc has hired advisers to prepare a possible $100bn bid to take full control of Verizon Wireless from its partner Vodafone Group Plc, two people familiar with the matter said.
Verizon is contemplating a roughly 50:50 cash and stock bid for the 45 percent stake in Verizon Wireless it does not already own, an asset it has long coveted, the sources said. It has not put a proposal to Vodafone yet but has hired banking and legal advisers for a possible offer, the sources said.
There are no guarantees that Vodafone will be interested in a deal or that any bid will materialise, the sources said. But they said Verizon was ready to push aggressively and hoped to start discussions with Vodafone soon for a friendly agreement. Verizon is also prepared to take a bid public if the British company does not engage in talks, one of the sources said.
Verizon spokesman Bob Varettoni declined to comment. Vodafone declined to comment. Verizon Wireless was not available for comment.
Shares in Vodafone, the world’s second-largest mobile operator, were up 1.6 percent in London, while Verizon shares were up 1.8 percent in New York. Verizon, which has made little secret of its wish to buy out its British partner in the biggest US 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 company’s move to hire advisers and the sources’ revelation of a price range highlight the company’s seriousness about doing a deal.
At $100bn, a deal would be the third-largest acquisition ever, according to Thomson Reuters data, and would come amid a new round of consolidation in the industry.
Investors say the conditions for a deal have improved as a result of Verizon’s strong results, its share price gains, and low interest rates. Verizon shares are valued at 17.9 times forward earnings, compared with 11.8 for Vodafone. The sources said Verizon is confident that it can raise about $50bn of bank financing to fund a deal.
“This is a good time for both sides to think seriously about a transaction. Vodafone’s probably never going to get a better multiple than now,” New Street analyst Jonathan Chaplin said. “The growth rate (for Verizon Wireless) probably has to slow over time, particularly as Sprint and T-Mobile USA and AT&T improve.” Several challenges remain, however.
Analysts and Vodafone investors said the roughly $100bn figure contemplated by Verizon was too low and likely more of an opening gambit to bring the British firm to the table. Most analysts had put the value of the Vodafone holding at nearer $120bn.
One top-40 Vodafone investor, speaking on condition of anonymity, said there was “absolutely no way” it will be $100bn, but that $135bn would suffice.
A key obstacle to a deal so far has been the expectation that Vodafone could incur a hefty tax bill if it sells its holding, meaning Verizon would have to pay up to make it worthwhile for the British company.
Another person familiar with the situation previously told Reuters that the two sides had held high-level talks to discuss options ranging from a stake sale to a full merger, and how any deal could avoid incurring a possible $20bn capital gains tax for Vodafone.
But the sources who spoke to Reuters late on Wednesday said any deal would be structured such that the eventual tax bill would likely be $5bn or less.
Chaplin said the tax bill estimate of $5bn was consistent with his calculations.
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.
Vodafone Chief Executive Vittorio Colao has 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 Colao could try to hold onto the asset for a little longer, until he sees some sign that his core European businesses are starting to stabilise.Reuters
