Verizon buys out Vodafone joint venture for US$130 billion

Verizon Communications has bought Vodafone’s portion of the two companies’ joint venture, US mobile network operator Verizon Wireless, for US$130 billion (AU$142 billion), in what is reportedly the third-largest announced corporate deal in history.

Since the joint venture’s inception in 2000, US company Verizon owned 55% of the company, while the UK’s Vodafone owned 45%.

Verizon has reportedly wanted Vodafone’s stake in the venture since 2004.

This week, Vodafone said it will sell its 45% of the joint venture to Verizon for US$130 billion in cash and stock.

The structure of the deal is not simple: Verizon will pay US$58.9 billion in cash, US$60.2 in Verizon shares and US$5 billion in loan notes. It will also pay with its 23% stake in Vodafone Italy - worth about US$3.5 billion - and take on US$2.5 billion of Vodafone’s debt.

The deal is expected to close sometime in Q1 2014.

Upon completion, Verizon will own the joint venture in its entirety. One analyst told USA Today that the acquisition will allow Verizon to integrate its wired and wireless units more deeply, and do more joint marketing.

Vodafone investors will directly receive 71% of the proceeds of the deal, with 30% of that in the form of cash and 70% in the form of Verizon shares. According to Forbes, “Vodafone investors [would] prefer if the long-awaited reward was something other than depressed stock. Verizon shares have risen only 6.3% in the past year, trailing the S&P 500’s 16.6% gain.”

Meanwhile, Verizon investors “face the uncomfortable reality that doling out more common shares will likely cause volatility in the stock - limiting any gains the stock could hope to make”, Forbes said.

Charles Sizemore, chief investment officer at Sizemore Capital Management, said, “Vodafone got the better end of this deal. It rids itself of a profitable but soon-to-be no-growth business, has the means to pay off all company debts nearly three times over, and has the financial firepower to expand its emerging-market presence, which is already one of the largest among Western carriers.”

According to Reuters, the deal is the third-largest announced corporate deal in history, behind Vodafone’s acquisition of German company Mannesmann and AOL’s purchase of Time Warner.