UK company Vodafone has owned a big chunk (45 percent) of Verizon Wireless since 1999, but that is about to change

VerizonVerizon has confirmed the rumor that they will be buying all of Vodafone's stake in the wireless division of their company in a $130 billion cash and stock deal that should close by Q1 2014. The deal was unanimously approved by the board of both companies, but still has to be approved by the government and company shareholders.

The executives at both companies are pretty bullish on the deal, and Verizon's Lowell McAdam says:

This transaction will enhance value across platforms and allow Verizon to operate more efficiently, so we can continue to focus on producing more seamless and integrated products and solutions for our customers. We believe full ownership will provide increased opportunities in the enterprise and consumer wireline markets.

In addition to today's news of the Vodafone buyout, Verizon has also announced an increase in the quarterly dividend of 1.5-cents to 53-cents per share. 

With $130 billion about to flow into Vodafone, and Verizon still recording a profit after announcing such an expenditure, it's obvious that the mobile industry is not about to slow down any time soon. See the full press release after the break.

Verizon Reaches Agreement to Acquire Vodafone's 45 Percent Interest in Verizon Wireless for $130 Billion

Transaction Provides Verizon with 100 Percent Ownership of Verizon Wireless
Enhances Ability to Provide Customers with Seamless and Integrated Services
Transaction Expected to be Immediately Accretive to Verizon’s EPS

NEW YORK – Verizon Communications Inc. (NYSE, Nasdaq: VZ) today announced that it has entered into a definitive agreement with Vodafone Group Plc (London, Nasdaq: VOD) to acquire Vodafone’s U.S. group with the principal asset of 45 percent of Verizon Wireless for $130 billion, consisting primarily of cash and stock. Verizon expects the transaction at close to be immediately accretive to the company’s EPS (earnings per share) by approximately 10 percent, without any one-time adjustments.

The transaction was unanimously approved by the boards of directors of Verizon and Vodafone, and is subject to customary closing conditions, including regulatory approvals and the approval of both companies’ shareholders. The transaction is expected to close in the first quarter of 2014.

The transaction would provide Verizon with 100 percent ownership of the industry-leading wireless carrier in the United States. As a wholly owned entity, Verizon Wireless will be better equipped to take advantage of the changing competitive dynamics in the market and capitalize on the continuing evolution of consumer demand for wireless, video and broadband services.

Lowell McAdam, Verizon chairman and CEO, said: “Over the past 13 years, Verizon Wireless has been a key driver of our business strategy, and through our partnership with Vodafone, we have made Verizon Wireless into the premier wireless provider in the U.S. The capabilities to wirelessly stream video and broadband in 4G LTE complement our other assets in fiber, global IP and cloud. These assets position us for the rapidly increasing customer demand for video, machine to machine and big data. We are confident of further growth in wireless, and our business in its entirety.”

McAdam continued: “This transaction will enhance value across platforms and allow Verizon to operate more efficiently, so we can continue to focus on producing more seamless and integrated products and solutions for our customers. We believe full ownership will provide increased opportunities in the enterprise and consumer wireline markets.”

McAdam concluded: “Verizon Wireless is the greatest wireless company in the world, and a big part of this success was due to the hard work of both partners, Vodafone and Verizon. The timing was right to execute a transaction that benefits both companies and their shareholders. Today’s announcement is a major milestone for Verizon, and we look forward to having full ownership of the industry leader in network performance, profitability and cash flow.”

Vittorio Colao, Vodafone Group CEO, said: “This transaction allows both Vodafone and Verizon to execute on their long-term strategic objectives. Our two companies have had a long and successful partnership and have grown Verizon Wireless into a market leader with great momentum. We wish Lowell and the Verizon team continuing success over the years ahead.”

Quarterly Dividend Increase

Demonstrating the importance of its dividend policy to deliver value for shareholders, Verizon also announced today that its Board of Directors has declared a quarterly dividend of 53 cents per outstanding share, an increase of 1.5 cents per share, or 2.9 percent, from the previous quarter. On an annual basis, this increases Verizon’s dividend 6 cents per share, from $2.06 to $2.12 per share.

Financing and Approvals

The transaction consideration of $130 billion consists of a combination of cash, Verizon common stock and other items.

Verizon will pay Vodafone $58.9 billion in cash. To fund this portion of the consideration, Verizon has entered into a fully executed $61.0 billion Bridge Credit Agreement with J.P. Morgan Chase Bank, N.A., Morgan Stanley Senior Funding, Inc., Bank of America, N.A. and Barclays. Verizon intends to reduce the commitments under the Bridge Credit Agreement with the issuance of permanent financing. In addition, Verizon expects to maintain capital structure, balance sheet and financial policies consistent with investment-grade credit metrics, in part based on 100 percent access to Verizon Wireless’ cash flow.

Verizon will also issue common stock currently valued at approximately $60.2 billion to be distributed to Vodafone shareholders, subject to a collar arrangement with a floor price of $47.00 and a cap price of $51.00 that will determine the maximum and minimum number of shares to be issued upon closing of the transaction. In addition, Verizon will issue $5.0 billion in notes payable to Vodafone, and Verizon will sell its 23.1 percent minority stake in Vodafone Omnitel N.V. to Vodafone for $3.5 billion. The remaining $2.5 billion of the transaction value will be a combination of other consideration.

Guggenheim Securities, LLC, J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC and Paul J. Taubman served as lead financial advisors to Verizon, and J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC also rendered fairness opinions in connection with the transaction. Barclays and BofA Merrill Lynch served as financial advisors to Verizon. Wachtell, Lipton, Rosen & Katz and Macfarlanes LLP are serving as transaction counsel to Verizon, and Debevoise & Plimpton LLP is advising Verizon on its debt financing.

Conference Call

Verizon executives will hold a conference call for investors and analysts to discuss further details of this transaction at 8 a.m. Eastern time tomorrow, September 3. There will also be a live webcast of the call on Verizon’s Investor Relations website, www.verizon.com/investor, where presentation materials will be posted. Dial-in numbers are 888-455-3018 for domestic callers, and 773-799-3816 for international callers; the passcode is "VERIZON."

A replay of the webcast will be available within two hours after the call. The webcast will be accessible on Verizon’s Investor Relations Web site, www.verizon.com/investor.

About Verizon Wireless

Founded in 2000 as a joint venture of Verizon and Vodafone, Verizon Wireless reported $75.9 billion in operating revenues in 2012 and $39.5 billion in the first half of 2013. Operating income margin was 28.7 percent in 2012 and 32.6 percent in the first half of 2013. EBITDA service margin (non-GAAP) was 46.6 percent in 2012 and 50.1 percent in the first half of 2013.

Verizon Wireless is the largest U.S. wireless company, with 100.1 million retail connections as of the end of the second quarter of 2013. It operates the country’s largest 4G LTE (advanced wireless broadband) network, which, as of July 2013, was available to 301 million people in 500 markets across the U.S. As of the end of the second quarter of 2013, the company had 73,400 employees and operated more than 1,900 retail locations in the U.S.

Since 2000, Verizon Wireless has invested more than $80 billion in its network, and the company has consistently led the industry in network reliability and customer loyalty.

 
There are 47 comments

HalizDad says:

Wow...even higher prices coming, huh? Somehow, Verizon has to recoup that 130B they just spent...

They probably had it sitting in a bank anyway

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As of December 31'st Verizon Wireless had 3.093 Million "sitting in a bank".

http://finance.yahoo.com/q/bs?s=vz+Balance+Sheet&annual

bworley50 says:

That's $3.093 billion

drepope100 says:

Couldn't have said it better myself. The consumer WILL fit the bill.

L.T.P.F.J.

Maybe they can recoup that 130b by I don't know, having 45% more of the profit?

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bigtank says:

Nope...We already had 100% of the profits...We were the majority stake and run the operations....We just payed Vodafone a dividend for the first time ever last year...That is why they wanted out of the deal for a while now

Moo Cow says:

I was reading an Associated Press story on this buyout and it sounds like that Vodafone didn't have much influence, if any at all, in Verizon's day-to-day operations, so this change will not have an impact in that regard.

Verizon also wanted to pay just $100B but Vodafone wanted the amount it got.

(I would have linked to the Associated Press article but the AC spam filter says I was posting spam, so I had to delete it.)

HalizDad says:

No, Vodafone probably didn't have much to do with day to day, but Verizon just spent 130B...They'll be wanting that back, shortly.

When the financial crisis hit, Bank of America didn't need a bailout, but "borrowed" 50B just because, then jacked up everybody's interest rates to raise that much capital and pay it back. They paid it back, and voila, everybody's interest rates stayed the same...

Are you suggesting Verizon is any different than Bank of America when it comes to maximizing capital on hand?

biggbrother2 says:

If Vodaphone didn't have much of a say in Verizon Wireless day to day then why would Verizon say it would make operations more efficient and why would they spend $130B to get it done?

My guess is that Verizon's restrictive policies will become even more restrictive because Vodaphone operates in markets were consumers have much more flexibility in service.

bigtank says:

The Wireless operations wont change much but now we can incorporate those services across all of our business lines. As a Wireline employee for the last 8 years it has sometimes been frustrating dealing with VZW as a separate entity. VZW employees were considered "contractors" in essence cause they partly worked for Vodafone. This will help integrate solutions across the various business channels, therefore more efficient in the big picture

Verizon is planning to get that money back and more probably from keeping business and usual. Otherwise they probably wouldn't do it.

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Moo Cow says:

I simply said that per the AP article, Vodafone had little to say in day-to-day operations. It's not like Vodafone had significant say, so Verizon bought them out to own 100 percent and now does what it wants without having to listen to Vodafone.

I did not go into any details of how Verizon plans to recoup its money, or even touch that subject. So I don't know how you got to the point that I am suggesting Verizon is any different from BOA, and the way you worded that response made it sound like I did.

HalizDad says:

I didn't say you said anything...I asked you a question...Smoke a bowl

MERCDROID says:

Smoke a bowl... Priceless lol

Posted from my phone, using your girlfriend's Internet, while you're at work.

MERCDROID says:

Smoke a bowl... Priceless lol

Posted from my phone, using your girlfriend's Internet, while you're at work.

Moo Cow says:

"Are you suggesting..." to start your question means something completely different as compared to, say, "If I said _____, would you agree?"

But when you end your comment with "Smoke a bowl", well, not all of us are here for immature drug references as comebacks.

HalizDad says:

Duplicated by the sneaky Android Central server...

Rehzonance says:

That's alot of doe!

Posted via Jamaica AC App - N4

WOW! And people think Apple over charges. LOL! Hope this works out for the consumer. I'm sure its just business as usual.

Posted via Android Central App and my Nexus 4 or 7

seasoul says:

I'm still puzzled as to how this benefits Verizon.

With 45% interest, Vodaphone didn't influence how Verizon conducted its business.

If the 45% made money for Vodaphone, why sell it back to Verizon?

If the 45% did not make money, why would Verizon want to buy it back?

Why not just take the 130 billion and invest it in the network? (which will no doubt generate more profit for Verizon)

Something is fishy about this deal... and I'm not talking about Ellen.

HalizDad says:

Verizon is now its own beast...I'm waiting for the other shoe to drop before passing judgement, but, they ARE going to recoup that 130B whether it was cash they had, or a loan they took out...Mark my MF'n words!

Sounds like Verizon is looking to continue to grow? And they think that the 45% stake in their business will result into a profit much larger than 130b in x amount of years?

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HalizDad says:

Of course they are looking to grow...It won't be in phones probably...They'll be competing with Dish, Netflix, etc. And probably jacking up their rates, prompting other companies to do the same because they can. I'm not into Verizon smartphone plans as is, so I couldn't imagine Verizon competing alongside the already overpriced Comcast I currently use.

I don't get the jacking up their rates angle going on here? Why is that necessary?

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HalizDad says:

Vodafone wanted a larger ROI...
http://news.cnet.com/8301-1035_3-57600984-94/verizon-to-pay-vodafone-$130b-for-stake-in-verizon-wireless/

t0ked says:

Great news as a Verizon customer and stock holder.

I agree with this. A move by any company doing this should keep the share holders happy.

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bworley50 says:

Not sure if you read the article but VZ raised their quarterly dividend concurrently with the announcement. They also boast one of the highest dividends of all S&P 500 companies, and their stock has been on fire over the last 4 or so years. Only recently has it pulled back due to rising interest rates. This is a catalyst to boost the stock back to its 52 week high. Selling shares on this news wouldn't be a good idea.

snookasnoo says:

Sure because Verizon would never ruse lack of choice to raised prices or restrict services...right

Oh look theirs all your loyal paying customers gauging money at its finest. Good to know morons still keep paying there ludicrous rates to just throw money at things like this instead of focusing on bringing value to its customers. GG love these sorta things.

Ry says:

So Verizon is going to be a US company. Isn't that a good thing?

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HalizDad says:

Apple is a US Company also...All their stuff is built in China.

snookasnoo says:

Everyones stuff is built in China. usually in the same factories.

Ry says:

But Verizon is a services company. Bad analogy.

My point is that it recently came out that the government gets special access to a network when it's owned in part by a foreign company.

The hooks are probably already there, but does that change anything with Verizon once the deal is done and official?

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NoNexus says:

If I had to make a guess, Verizon may be looking long term to expand into Europe in some way and this could pave the way for them with EU regulators.

Not sure though, just idle speculation on my part

MERCDROID says:

Good point. I didn't think of that. Now, Verizon can compete with Vodafone, if it decides to expand into Europe.

Posted from my phone, using your girlfriend's Internet, while you're at work.

Google luck with that. Vodafone announced they are using the capital raise to expand their European offering

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Jay Holm says:

So! This effects nobody except stock holders, not consumers.

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snookasnoo says:

We need more choices in carriers not fewer.

Mamaluka says:

This would not affect the choices US or foreign consumers currently have. Vodafone and Verizon were never available in the same markets.

SwiftKey'd from my Bohemoth Note2

ACADM says:

I wonder how much HMRC will see in Vodafone tax. I'd be surprised if it's much over 0.

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carraser891 says:

Wonder if that means anything for us employees..

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alc2077 says:

$130 Billy will need to be recouped by BIG RED, that money isn't going to fall out of the sky. That money is going to be recouped via consumers i.e vzw customers, so my advice to vzw customers is,get ready........

I have a feeling that once this is approved Verizon Communications will merge the Verizon Wireless subsidiary into itself. I think that's what they were talking about when they mentioned efficiency.

bigtank says:

I'm pretty sure thats what is wanted. Not sure regulators would sign off on such. I would be a challenge to Divestment of Bell in general

Belatukadro says:

They may merge some of their operations, but the fact that Verizon Wireless is currently in a partnership with Comcast would seem to indicate that they are going to continue operating Verizon Wireless as its own brand, at least for the next few years. Otherwise, they would technically have a cross-licensing deal with their direct competitor, which would just be odd.

So, on the consumer/client-facing side, there will likely be little to no fallout. The internal structure will probably see increased resource pooling, which would allow Verizon's terrestrial and mobile network to work more smoothly together, but otherwise operate as they have been. Considering that both sides are quite profitable, there is no real reason to drastically shake things up.

As far as prices, I don't see a significant change coming. If they try and push price increases now, with T-Mobile nipping at their heels, they are asking for trouble. Their best move would be to launch their own competitive prepaid plan. However, until they have VoLTE, that really doesn't work all that well, as the biggest advantage of prepaid is being able to switch carriers, and the CDMA radio needed for Verizon's fallback network is extremely off-putting to manufacturers. Hence is why their current prepaid plans are 3G-only, which is pretty much a joke since the price is the same as or greater than other prepaid GSM carriers that are based on HSPA+ high-speed networks.