The Deal: Vodafone Confirms Talks About Verizon Wireless Exit

BERLIN ( The Deal) -- Cellular giant Vodafone Group ( VOD) on Thursday, Aug. 29, said it was in talks to sell its 45% in its Verizon Wireless U.S. venture to partner Verizon Communications ( VZ). The reported $130 billion price tag, if confirmed, would be the highest for an M&A transaction in more than a decade.

In a two-sentence release, Vodafone, of Newbury, England, said it was in discussions but warned: "There is no certainty that an agreement will be reached."

Analysts and investors and even the companies have talked about Vodafone's exit for years but valuation, tax and financing have presented hurdles. Verizon has now devised a structure to overcome the obstacles including $10 billion each in loans from six different banks, The Wall Street Journal reported. It might then cover the rest in shares.

The announcement ignited Vodafone's shares, pushing them up 9%, or 17 pence, to 2,063 pence ($3.20) by late morning. If successful, the buyout would be the biggest piece of M&A since Vodafone itself struck a ¿180 billion ($238.8 billion) agreement to buy Germany's Mannesmann in 2000.

"So long as Vodafone pays down its debt, runs steady ships in international operations to mitigate the losses in southern European businesses and delivers incremental increase to earnings via the integration of Kabel Deutschland, there's little reason to be bearish about this stock," wrote ETX Capital's Joe Rundle in a morning note.

Vodafone CEO Vittorio Colao could use the cash as he works to add extra services to ensure Vodafone can offer customers television, telephone and both traditional and wireless Internet. It's working to buy German cable company Kabel Deutschland Holding AG for ¿7.7 billion and last year bought Testra Corp. in New Zealand.

At the end of 2012, the U.K. wireless services provider had £24.4 billion in net debt.

The deal would also cap a string of divestments by CEO Colao, who several years ago said he wanted to focus on solely owned divisions. In 2011 Vodafone sold its 44% stake in French broadcaster Société Française du Radiotéléphone SA, or SFR, to majority owner Vivendi SA for ¿7.95 billion.

He also exited minority investments in Japan, China and Poland and bumped Vodafone's 42% stake in the Indian Vodafone Essar Ltd. venture to 75% by buying out Essar Group for $5 billion.

To help offset the sting of the price for New York-based Verizon, Vodafone would also buy a 23% stake in its Vodafone Italia from Verizon for ¿4 billion, according to Bloomberg.

The Verizon Wireless venture only this year resumed paying a dividend after it halted profit-sharing activities in 2005 to spend on infrastructure and wireless frequencies. The company paid both owners a total $10 billion, sparking a special dividend at Vodafone.

--Written by Andrew Bulkeley.

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