Verizon-Vodafone split could be a win-win

The reported buyback could make the largest mobile phone company in the US stronger while giving its longtime British partner an infusion of cash.

By Bruce Kennedy Aug 30, 2013 9:02AM

It could end up being one of the largest telecommunications deals ever -- and might change the sector's landscape for years to come. Britain's Vodafone Group (VOD) is in talks with Verizon Communications (VZ) about selling the U.S. company its 45% stake in their joint venture, Verizon Wireless.

Vodafone shares jumped more than 8% Thursday, following the company's confirmation that negotiations -- often rumored to be happening in the past -- were indeed now underway. Verizon rose nearly 3%.

Verizon Wireless is already America's largest and most profitable mobile phone company. Its market capitalization is around $138 billion, and second-quarter net income was $6.6 billion, up 16% year over year on revenue of about $30 billion.

Reports say Verizon could pay Vodafone up to $130 billion for full ownership in the venture -- and according to Bloomberg, Verizon is working with banks to line up financing for about half of the deal.

The buyout would be just the latest in a series of mergers and acquisitions that have been reshaping the mobile phone industry, and would end a partnership between Verizon and Vodafone that goes back to 1999.

Although such a breakup has been generated plenty of speculation in the past, Verizon appears to have timing on its side now. Its share price hit a 13-year high in April, and while the stock has fallen some 14% since that peak, it still gives the company the financial flexibility needed for a buyout of this magnitude.Customers enter a Verizon Wireless store in New York City on July 23, 2010 (© Jin Lee/Bloomberg via Getty Images)

For Vodafone, the deal would provide a financial shot in the arm and could hugely benefit its attempts to revive operations in a financially weakened Europe. A buyout would also bring an end to what one analyst calls the volatile and years-long "soap opera" relationship between Verizon and Vodafone.

So, is this a win-win for telecom's odd couple? Vodafone reportedly has over $30 billion of debt, and the potentially huge cash infusion from Verizon would allow it to pursue new opportunities in Europe, as well as in emerging markets and in Africa.

And while Verizon would have a sizable new long-term debt burden to deal with, consolidating its wireless operations under one roof would help bring in new revenue. And by owning 100% of what one analyst told Forbes was "arguably the best wireless asset in the country," Verizon would have new strength in an increasingly competitive wireless industry.

That will come in mighty handy given the intense competition it faces, especially from AT&T (T). At this early stage -- and there are no guarantees Verizon and Vodafone will come to terms -- investors seem optimistic about all parties involved, bidding up all three companies' shares on Thursday's news of the breakup talks. They're anticipating that telecom's transformed landscape could be newly profitable.

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Aug 30, 2013 9:57AM
As Teddy Roosevelt would say, " It's time to end the reign of Oligopoly's " To much wealth is already in the hands of to few and the big corporation will just keep eating the little ones till there's nothing left to eat. These massive corporations are killing the entrepreneurial spirit the made our nation the land of opportunity.
Aug 30, 2013 11:37AM

MAX S.:You`re 100% correct.Give us another TR and I`ll vote GOP.However, these days

the GOP is stuck with garbage like McCain,Romney,Palin and the like.

Aug 30, 2013 12:46PM
Pardon the crude way I say this, but Vodafone has always been Verizon's w----e in this deal. Ivan Seidenburg, former VZ CEO, liquidated his Bell Atlantic Mobile stocks and raked in a windfall the day before he and the new Verizon signed onto it the next day. Verizon has always used Vodafon's network in the partnership to make cash-cow profits, paying Vodfon premium didvidends  the past few years to keep it going, while Verizon spins down it's wired landline business on the other side of town.
Aug 30, 2013 11:34AM

Classic lady;You know most Republicans can`t spell phone or liberal or Obama.Most

arn`t smart enough to leave that Nazi party behind like you know who.

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