By Soyoung Kim and Michelle Sierra
NEW YORK (Reuters) - The boards of Verizon Communications and
Vodafone Group Plc are expected to vote this weekend on a $130 billion
deal, funded by about $65 billion of debt, to give the U.S. telecom
giant complete ownership of Verizon Wireless, people familiar with the
matter said on Saturday.
A deal, which the sources said could be announced as soon as Monday,
would cap Verizon's decade-long effort to win full control of the No. 1
U.S. wireless provider.
At $130 billion, it would be the third-largest corporate acquisition
of all time and mark British telecom giant Vodafone's exit from the
large but mature U.S. market. Vodafone owns 45 percent of the Verizon
Wireless joint venture that was formed in 2000.
Verizon Communications and Vodafone declined to comment.
Verizon plans to pay for half of the purchase with its own stock,
the sources said. For the rest, it has tapped JPMorgan Chase & Co,
Morgan Stanley, Barclays Plc and Bank of America Merrill Lynch to help
raise the funds through a mix of bonds and bank loans, the sources said.
The banks are joint lead arrangers of the financing, with JPMorgan
and Morgan Stanley serving as global coordinators, the sources said. The
four banks are also advising Verizon, along with former Morgan Stanley
banker Paul Taubman and Guggenheim Partners, the sources said.
Taubman, the former co-president of Morgan Stanley's institutional
securities business and a top dealmaker, left the Wall Street firm
earlier this year after 27 years there.
Goldman Sachs Group Inc and UBS AG are advising Vodafone, the sources said.
Goldman Sachs declined to comment, while the other banks were not immediately available for comment.
Since Verizon, led by Chief Executive Lowell McAdam, already had
operational control of the wireless company, the deal is not expected to
create any changes for its customers, but its additional financial
firepower could help the company boost its service going forward.
After the deal, Vodafone, the world's second largest mobile
operator, will have assets in Europe and emerging markets such as India,
Turkey and Africa. But it raises questions about what the company will
do with the windfall. Top investors in Vodafone contacted by Reuters
earlier this week were split between those wanting to see the cash
returned as dividends and those wanting the firm to invest it.
A deal would come amid a spate of consolidation attempts, both
successful and failed, in the telecom industry over the past few years.
Most recently, Japan's SoftBank Corp took control of Sprint Nextel Corp,
the No. 3 U.S. wireless provider, in a $21.6 billion deal. In a related
plan, Sprint agreed to buy out the portion of wireless company
Clearwire Corp that it already did not own.
ON AGAIN, OFF AGAIN
An agreement over Verizon Wireless would mark the culmination of
on-again, off-again discussions going as far back as 2004, when Vodafone
bid for AT&T Inc's wireless business and would have had to shed its
Verizon Wireless stake. The British company, however, lost that bid to
Cingular, and has since held on to the Verizon Wireless stake for its
exposure to the U.S. wireless market.
The news of Verizon's latest efforts was first reported by Reuters
in April. At the time, sources said Verizon had hired advisers to
prepare a $100 billion cash and stock bid to take full control of
Verizon Wireless. Verizon was ready to push aggressively but preferred a
friendly deal.
But Vodafone Chief Executive Vittorio Colao was biding his time,
making it clear he would only sell the 45 percent stake at what he
considered the right price.
Talks picked up in earnest a few weeks ago, however, as Verizon grew
concerned that its window of opportunity may be closing, with interest
rates going up and its own stock declining, one of the sources said.
Verizon's stock fell more than 4 percent in August.
That prompted Verizon to raise the offer price from the $100 billion
it had initially envisioned to around $130 billion, sources have said.
Even after the bump in price, the deal is expected to be accretive to earnings, the source said.
With 2012 free cash flow of $28.6 billion at Verizon Wireless, RBC
Capital Markets analyst Doug Colandrea said earlier that Verizon has the
ability to rapidly repay the debt raised to fund the deal.
TAX BILL
Another hindrance to a deal has been the possibility of a huge tax
bill for Vodafone from the sale, based on the massive growth Verizon
Wireless has experienced since it was established. But the sources said
the deal would be structured in such way that Vodafone's tax bill could
be cut to around $5 billion.
Verizon Communications will buy Vodafone's U.S. holding company,
Vodafone Americas, that owns the Verizon Wireless stake and some other
assets, the sources said. Verizon will then keep the Verizon Wireless
stake and sell European assets back to Vodafone, they said.
Since the seller of Vodafone Americas would not be a U.S.-based
entity, no U.S. capital gains tax would be due, tax experts have said.
And Vodafone may be able to take advantage of Britain's substantial
shareholdings exemption on the money it repatriates. The clause, under
certain conditions, exempts from UK corporation taxation any gains
realized when one company disposes of shares in another company.
The deal is also likely to be a fee bonanza for banks. At a $130
billion price tag, total advisory fees for banks involved would be in
the $200 million to $250 million range, according to Freeman estimates.
Moreover, banks arranging the financing would get fees as well. Fees
for loan syndication could be around 0.2 percent to 0.4 percent of the
proceeds raised, according to Freeman.
(Reporting by Soyoung Kim and
Michelle Sierra; Additional reporting by Nicola Leske; Editing by
Paritosh Bansal and Sandra Maler)
