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Verizon to seek Vodafone buyout or even merger?

Future of Verizon Wireless could be resolved this year, and could even lead to one of the world's biggest ever mergers


Published: 6 March, 2013


The twisting tale of the future of Verizon Wireless's ownership continues, with the latest reports that Verizon will seek to buy out its 45% partner Vodafone.

The end of one of the most successful (though sometimes very tense) mobile joint ventures ever has been rumored many times. At various junctures, Vodafone shareholders have pushed for an exit, seeking to cash in on the unit rather than considering the implications of losing a stake in the US; and Verizon has made no secret that it would eventually like full control of its major cash and profit generator, as the balance of its business increasingly lurches towards mobile.

The two companies are once again discussing a split, according to several sources, with options including a full or partial buyout by Verizon Communications, or even a complete merger of the two carriers, say analysts. With the JV contract at one of its periodic review points soon, Verizon is said to be keen to take control this year.

Verizon Wireless has played a blinder in the past couple of years, rolling out LTE at lightning speed, capitalizing on arch-rival AT&T's failed merger bid with T-Mobile, and signing an important spectrum and marketing deal with four cable operators. It added a record 2.1m net new subscribers in the last quarter and reports wireless margins of over 41%.

"Verizon wants to control what is genuinely the best telecom asset on the planet," Jonathan Chaplin of New Street Research told Bloomberg. "Verizon Wireless just came off a phenomenal year where they capture all the growth in the industry with record high margins. And this year I would expect the same."

Sources say Verizon Wireless's parents discussed a full merger before the holiday season, but those talks broke down because of disagreement on leadership and location issues. One scenario saw the joint entity being headquartered in UK (good for tax reasons) but with Verizon's Lowell McAdam at the helm, and with Verizon shareholders taking 55% to 60%.

A full merger would be one of the largest takeovers in history. Verizon has a market value of over $135bn, while Vodafone's is about $125bn. However, the failure of the pre-holiday talks makes it more likely that the companies will now settle on Vodafone selling all or part of its 45% stake in their JV to its partner. Analysts believe that Verizon would need to pay well over $100bn, perhaps $115bn, for Vodafone's stake in the wireless arm. The expectation is that the new round of talks is in an early stage and will take months to conclude.

The venture was created in 1999 during the telecoms bubble at the turn of the century, but the thinking of Vodafone's executives has changed since then, as the company has matured from a bold global adventurer to a more cautious juggernaut, whose CEO, Vittorio Colao, now wants to sell off non-controlling stakes in operators - he has already done that in France' SFR, and in Poland and China. The proceeds from selling out of Verizon would likely be divided between shareholders, until recently frustrated by the lack of dividends from the US unit, and new acquisitions in Europe or Africa. Vodafone is investing in wireline as well as mobile activities and is said to be keen on German cableco Kabel Deutschland.

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