By Jonathan Braude and Andrew BulkeleyPhone giant Verizon Communications Inc. ( VZ) late Monday finally confirmed the details of its hard-fought $130 billion cash-and-stock agreement to buy a 45% stake in Verizon Wireless from it U.K. partner Vodafone Group PLC ( VOD) in the biggest deal since Vodafone bought Germany's Mannesmann AG for ¿180 billion ($238.8 billion) in 2000. In an announcement after the London market closed on Monday, New York-based Verizon said it will pay Vodafone $58.9 billion in cash, funded, as expected, with a $61 billion bridge loan from JPMorgan Chase & Co. ( JPM), Morgan Stanley ( MS), Bank of America ( BAC) and Barclays PLC ( BCS). The American company said it will also issue common stock, currently valued at about $60.2 billion to be distributed to Vodafone shareholders, as well as $5 billion in loan notes payable to Vodafone. It will also sell its 23.1% minority stake of Vodafone's Italian business, Vodafone Italia, or Vodafone Omnitel NV, to the British company for $3.5 billion. It said it will finance the remaining $2.5 billion through a "combination of other considerations." Vodafone clarified in a separate statement that this includes "the assumption by Verizon of Vodafone net liabilities relating to the U.S. group." Vodafone, of Newbury, England, said the price represented an "attractive" enterprise value of 9.4 times trailing 12 month Ebitda and 13.2 times trailing operating free cash flow. The agreement ends years of speculation about the venture, which started in 1999 with Vodafone's entry into the U.S. market. 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%. Financing and tax questions had proved obstacles to previous efforts to restructure the ownership. Verizon said the transaction is dependent on regulatory approvals as well as shareholder votes at both companies and is not expected to close until the first quarter of 2014. To account for market fluctuations in the interim, Verizon said the share price would be subject to a collar arrangement with a floor price of $47 and a cap price of $51 that will determine the maximum and minimum number of shares to be issued to Vodafone shareholders on closing. On this basis, a maximum of 1,280 million Verizon shares and a minimum of 1,179 million Verizon shares will be payable, Vodafone said.
Adding further detail, Vodafone said Verizon had the right to increase the cash portion of the deal by up to $15 billion and reduce the size of the payment in shares proportionally. It also explained that the notes included in the Verizon deal would be Verizon senior unsecured floating rate loan notes in two equal tranches with maturities of 8 and 11 years, and that Vodafone had staged sale rights from 2017. Verizon expects the deal to be immediately accretive to earnings per share by about 10% on closing, without any one-time adjustments. It also declared a quarterly dividend of 53 cents a share, an increase of 2.9% from the previous quarter. Vodafone's stock had already jumped 8% since Thursday when it confirmed talks for the first time. It gained a further 3.4% on Monday to close at 213.2 pence, giving the company a market capitalization of £103.7 billion ($161.1 billion). Vodafone said in Monday's statement that its shareholders will garner $84 billion of the proceeds and also announced a plan to invest £6 billion over the next three years "to establish further network and service leadership." These investments will include upgrading and further building its 3G and 4G networks across Europe, as well as faster deployment of mobile data services and a number of other areas of investment. Also clarifying the much debated question of taxation, Vodafone said the deal would give rise to about $5 billion of tax in the U.S. as a result of a reorganization of its assets before closure which would leave its remaining assets held through a Netherlands company. Exiting those assets would be taxable neither in the U.S. nor the Netherlands. It also claimed that if the assets were held in the U.K. instead of the Netherlands, they would still not be subject to U.K. tax. "Under rules established in 2002, the U.K. has similar shareholding disposal exemptions to those of the Netherlands," Vodafone said. Vodafone is advised by Karen Cook of Goldman Sachs Group Inc. and Simon Warshaw of UBS ( UBS). Guggenheim Securities LLC, JP Morgan, Morgan Stanley and Paul J. Taubman served as lead financial advisers to Verizon, and JPMorgan and Morgan Stanley also rendered fairness opinions in connection with the transaction. Barclays and Bank of America Merrill Lynch served as financial advisers 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.