Vodafone: We're not buying Verizon

Vodafone: We're not buying Verizon

Summary: The Financial Times reports that Vodafone is pondering a $160 billion acquisition of Verizon. Vodafone says yeah right.

TOPICS: Verizon

The Financial Times reports that Vodafone is pondering a $160 billion acquisition of Verizon. Vodafone says yeah right. But a weak dollar could make the deal possible.

Welcome to merger Monday.

Vodafone said in a statement:

Vodafone notes press speculation that it is considering a possible offer for Verizon Communications.  Vodafone wishes to make it clear that it has no plans to make such an offer.

Now why would Vodafone spend all that dough for Verizon? To own all of Verizon Wireless of course. Currently, Verizon Wireless is a joint venture between Verizon and Vodafone. Apparently, the Financial Times thinks this is a great reason buy all of Verizon and then spen the stuff it doesn't want--FiOS and the traditional telecom business to private equity players.

Indeed, this potential Vodafone-Verizon bid is audacious. I also don't doubt the FT's blog post--of course Vodafone is kicking the idea around (it probably has ever since the Verizon Wireless venture launched).

Here are the key paragraphs in the FT post:

The audacious plan has been discussed in recent weeks as Vodafone has considered whether to trigger a little-known put option it holds over part of its stake in Verizon Wireless — a move that, accompanied by an asset revaluation at the American company, could allow it to suck up to $20bn out of Verizon and distribute this to its shareholders.

The extreme alternative of bidding for Verizon would create a business capitalised at around $300bn — bigger than AT&T, currently the world’s largest telecoms business.

According to well placed financiers, in contemplating such a move, Vodafone has looked at a range of deal structures. These include a plan to buy the whole of Verizon and then simultaneously spin-off its fixed line interests to a private equity consortium. The company has also looked at whether it could part-fund the deal with the issue of a tracker stock for US investors.

If pursued, the private equity side deal alone, valued at around $90bn, would constitute the largest leverage buyout on record.

Translation: This Vodafone bid idea was planted with the FT as a trial balloon. Given all the references to structures and spin-offs it's obvious that some investment banker cooked up the various scenarios (all for a fee of course). Once Vodafone shares took a hit, the company issued its statement shooting the idea down.

Nevertheless, I doubt this Vodafone-Verizon talk will go away quietly. Shockingly, the biggest argument for the Vodafone-Verizon deal was left out: The weak dollar. Sure, $160 billion is a huge amount, but it's not nearly as big as it used to be--if you're paying in British Pounds. The dollar is a downtrodden currency these days. And Vodafone reports its financials in the pound. A Vodafone acquisition of Verizon is the equivalent of a Londoner taking a vacation in the U.S.--it's a bargain.

And given the dollar only buys .49 of a pound that $160 billion price tag may not be all bad. If Vodafone is paying in pounds the Verizon deal is only $78.5 billion.

Topic: Verizon

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  • good idea, but....

    well, the spinning off of the FIOS and other parts of verizon from the wireless seems ok on paper. but I see several problems from that happening:

    1st problem: the local and internet service would eventually have to be sold to someone, and the only companies that might have the cash to do that would have anti-trust issues (at&t, etc).

    2nd problem: with US bonds and debt issues being downgraded left and right these days, and many more debt-leveraged issues about to be downgraded by the end of the year, I don't see any lenders forking over that much cash for such a spin-off to happen.

    3rd problem: congress may not be in the best of moods right now to sell off more of the US infrastructure to foreign interests.

    just my thoughts, maybe i'm wrong.
    • Are you kidding?

      "3rd problem: congress may not be in the best of moods right now to sell off more of the US infrastructure to foreign interests. "

      Congress lives to sell off parts of US infrastructure. It indirectly helps them make money and employ their families by way of the lobbying industry in DC.

      Even presidents enjoy selling out the US. Billy C had no problem allowing US defense contractors to sell classified and dual use technologies to Asian countries. He even almost allowed a major port in Florida to be sold to the Chicoms.
  • Incompatible

    I for one would love to see several worldwide mobile phone providers emerge, as international roaming is a complete rip-off for Americans (but not a problem if you are a European with a Europe-based plan roaming Europe, go figure).

    Of course, T-Mobile has yet to prove me right on this.

    The biggest problem with Voda and Verizon is Voda is a GSM-based service, but Verizon uses CDMA technology. So international roaming capable Verizon phones are large, clunky devices which must incorporate an international-band GSM transceiver (and associated SIM card) and a CDMA transceiver for U.S. use. Compare this to most mid-range GSM phones which are all quad-band and therefore international capable.

    The same incompatibility applies to 3G services, where Vodafone is using UMTS and HSDPA technologies and Verizon uses EV-DO.

    The best way to roam onto a Voda network is to use AT&T or T-Mobile. I wish Voda had succeeded in buying AT&T Wireless when it tried. It may have brought in possibilities of lower-cost international roaming.