Vodafone has confirmed that it’s in negotiations to sell its 45 percent stake in Verizon Wireless to Verizon, which holds the remaining 55 percent share.
“There is no certainty that an agreement will be reached,” Vodafone said in a brief statement Aug. 29.
Such a deal has been the stuff of rumors for years, and in the spring the pair made headlines again, after Verizon put out an opening bid of $100 billion, which Vodafone reportedly found too low. Investors interviewed by Reuters estimated that an acceptable price would likely be between $120 billion and $135 billion.
The figure currently being discussed is $130 billion, Reuters reported Aug. 29.
“Verizon is working with several banks to raise $10 billion from each to finance about $60 billion of the deal and an announcement could come as soon as Sept. 2,” said the Reuters report, citing two people with knowledge of the deal.
“Gartner has been recommending for years that Verizon pursue this buyout,” Bill Menezes, a principal research analyst with Gartner, told eWEEK. “Having total control would allow it to do some things more efficiently, such as how it wants to structure things, in terms of pricing and plans. … With full control, it can better integrate its strategies.”
While Verizon Wireless is currently the largest wireless carrier in the United States, with the most aggressive 4G Long Term Evolution (LTE) rollout, it faces increasing competition from the three other Tier 1 rivals.
AT&T continues to grow and improve its network (and reputation), Sprint recently received an influx of cash from its deal with Japanese carrier Softbank, and T-Mobile, in addition to merging with MetroPCS, has been stirring up the industry with offers that are getting the attention of consumers and forcing its rivals to respond.
Verizon Wireless, for example, introduced the Edge device payment plan in July, shortly after T-Mobile began offering something similar.
“On the consumer side, anything that makes Verizon Wireless more nimble, especially in regard to responding to T-Mobile and Sprint, is a good thing,” said Menezes. “They need to be able to match or out-innovate whatever the others offer to consumers—and Softbank has made clear that it plans to be very aggressive.”
Menezes noted that the markets appear comfortable with Verizon taking on the kind of debt load required for the deal, just as they were with Sprint and Softbank.
“We’ll be keeping an eye on the operation to see that in trying to service this debt they’re not cutting back on areas where they need to bolster their service,” he said.
Customer service is one area that no funds should shift from, and so is the second phase of its network expansion using spectrum that it purchased (in a rather controversial deal) from the cable companies last year.
“We don’t want to see that slow down,” said Menezes.
As part of its negotiations, Verizon will likely sell back to Vodafone the 23 percent stake that it controls in Vodafone Italia, which is said to be worth around $5.3 billion, according to a Bloomberg report.
Vodafone, which due to the recession in Europe could use the influx of cash, is expected to reward investors with share buybacks and also use the money to pursue acquisitions in additional markets, such as Africa.
