Vodafone Says Its Close to $130 Billion Verizon Wireless Exit

By Andrew Bulkeley

BERLIN ( The Deal) -- The board of phone company Verizon Communications Inc. ( VZ) is expected to approve a $130 billion cash-and-stock agreement to buy a 45% stake in Verizon Wireless from partner Vodafone Group PLC ( VOD) late Monday.

Vodafone said on Sunday that it was in "advanced talks" on the record-setting deal, confirming the price tag for the first time. It would be the biggest deal since Vodafone, of Newbury, England, bought Germany's Mannesmann AG for €180 billion ($238.8 billion) in 2000.

"The consideration would substantially comprise a mixture of Verizon common stock and cash," Vodafone said. "There is no certainty that an agreement will be reached. A further announcement will be made as soon as practicable."

The agreement would end years of speculation about the venture, which started in 1999 with Vodafone's entry into the U.S. market. Financing and tax questions have proved obstacles to previous restructurings of the ownership but both sides this time have apparently overcome the hurdles.

"Considering the increasing competition in the U.S. and the price, the time is right to get out," Independent Research GmbH analyst Markus Friebel wrote in a note anticipating the sale. "However, Vodafone would be losing its most valuable asset and would then be more dependent on its weak European business."

Verizon, of New York, has reportedly lined up $60 billion in financing from JPMorgan Chase & Co. ( JPM), Morgan Stanley ( MS), Barclays PLC ( BCS) and Bank of America Merrill Lynch ( BAC) and would pay the remainder in shares. The only thing left is for the suitor's board to approve the deal, leading to an announcement after the London Stock Exchange closes Monday, according to Reuters.

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 euros, Bloomberg has reported.

Vodafone's stock already jumped 8% Thursday when it confirmed talks for the first time and gained an additional 4.4%, or 9.25 pence, in early London trading to 213.97 pence ($3.33) Monday.

Once complete, analysts expect Vodafone to return some cash and potentially Verizon shares to investors, pay down its £24.4 billion ($38 billion) in debt then seek acquisitions.

Vodafone CEO Vittorio Colao has been working to reshape Vodafone along customer demands that it provide wireless and traditional broadband as well as cellular service and even entertainment content. Vodafone is working to buy German cable company Kabel Deutschland Holding AG for €7.7 billion and last year bought both Testra Corp. in New Zealand and Cable & Wireless Worldwide PLC in the U.K.

Analysts have said the company could launch offers for Italian broadband company Fastweb PLC, which is owned by Swisscom AG, or private equity-owned Grupo Corporativo Ono SA, a small Spanish phone company.

Other recent deals by Colao may telegraph another potential direction for the company: It recently bumped up its 42% stake in its India's Vodafone Essar Ltd. venture to 75% by buying out Essar Group for $5 billion. It could begin looking for other opportunities in growth markets in Africa, Asia or even South America, analysts said.

A sale of the Verizon stake would be the crown achievement in a lengthy divestment program by Colao, who several years ago said he wanted to focus on solely owned divisions. In 2011 Vodafone sold its 44% stake in French broadcaster Societe Francaise du Radiotelephone SA, or SFR, to majority owner Vivendi SA for €7.95 billion. He also exited minority investments in China, Japan and Poland,

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 of $10 billion, sparking a special dividend at Vodafone.

Vodafone and Verizon ended up partners after Vodafone outbid Bell Atlantic Corp. in the 1999 auction of Airtouch Communications Inc.

Fearing the competition, Bell Atlantic then agreed to merge with Vodafone's newly acquired U.S. provider. Eventually the cellular division of GTE Corp. was folded in and the provider was renamed Verizon Wireless, with Verizon holding 55%.

"The sale would help push the consolidation of the European phone market," Nomura International PLC analyst James Britton wrote in a note. He has a buy rating on Vodafone shares.

The shakeup is part of a broader consolidation of global telecommunications holdings. International providers are selling off peripheral units to deal with liabilities related to years of expansion and fund infrastructure upgrades, and making hand-picked acquisitions to fill demand for quad-play services -- TV, phone and anywhere access to the Internet.

In that reshuffle, Germany's Deutsche Telekom AG earlier this year merged its T-Mobile USA Inc. unit with MetroPCS Communications Inc. and Hutchison Whampoa Ltd. is buying the Irish unit of Spain's Telefónica SA ( TEF) for €850 million.

Vodafone refused to comment on advisers but used UBS ( UBS) for the Cable & Wireless deal and called in Goldman, Sachs & Co. ( GS) alongside the Swiss bank in the acquisition of Kabel Deutschland.

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