British telecom giant Vodafone Group Plc (VOD) has resumed talks to sell its 45 percent stake in Verizon Wireless to its joint partner, Verizon Communications Inc. (VZ) . Verizon has for years made clear their intention to wrest complete control of the wireless division from Vodafone, and though a deal is far from finalized, talks are reportedly progressing well, and should close by early September.
Billions remain at stake, as mobile explodes in popularity across the world, especially in the US. Verizon is reported to be offering $100 billion for Vodafone’s stake, while Vodafone is countering with $130 billion. Regardless of the final amount the companies settle on, a deal is expected to close by September 3.
In 2012 Verizon Wireless generated $28.6 billion in free cash flow, more than justifying the high price tag for the stake in the American wireless carrier. Verizon is expected to finance the deal by taking out a series of multi-billion dollar loans from several banks against these expected profits. Verizon is also expected to offer up a large chunk of Verizon stock.
With the massive sell it seems Verizon and Vodafone might be divvying up markets, as Vodafone gets out of North America and Verizon out of Europe. To further sweeten the blockbuster deal, Verizon might be willing to trade out its 23 percent stake in Vodafone Italy back to Vodafone.
This would nearly completely eliminate competition between the two telecoms. Vodafone would retain its presence in Europe and emerging markets like India and Turkey, while Verizon would be cleared to reap the full benefits of the highly profitable North American market.
If completed, this deal would be the largest telecom deal in history, and the third (or possibly second) largest global deal in the history of capitalism. The second largest was Pfizer Inc’s (PFE) purchase of Warner-Lambert Co. for $110 billion. The largest deal in history was also orchestrated by Vodafone in 1999, when the company paid $171 billion for German conglomerate Mannesmann AG.
Vodafone and Verizon both shot up on the news. Vodafone jumped 7.67 percent on the expected cash injection from the deal, hitting $31.66 as share. Verizon is up 3.32 percent to hit $48.10 a share.
(Image of Vodafone Building near Victoria Park courtesy of Wikimeida Commons)
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer