British telecommunications giant Vodafone has confirmed it is in talks to sell to Verizon Communications its 45 per cent stake in Verizon Wireless, in a deal that could be worth at least $US125 billion ($139 billion).
This has been a long-sought deal for Verizon, and one that would rank among the biggest corporate purchases in history.
With full ownership of its wireless business, Verizon would be able to shift from receiving dividends, to being able to incorporate all of its profits. It will also have control over what it does with that profit, especially as advertisers, content distributors and wireless carriers increasingly use smartphones, mobile data and information services.
It is clear why Verizon would want complete ownership of its wireless division. The wireless industry, already worth $US1.6 trillion, is expected to become a multitrillion-dollar market in the next decade.
With 10 billion connections worldwide, the number of cellular subscriptions is on track to outgrow the human population. That is because in addition to mobile phones, many other devices, such as tablets, video game technology and even home security systems, are now all relying on mobile towers.
Verizon is still the No.1 mobile phone carrier in the US by market share, but faces formidable competition from AT&T. Those two account for two-thirds of overall subscribers.
Verizon's core strategy has been to invest in network infrastructure to attract customers. It is leading the industry-wide race in building a faster 4th generation wireless network.
Shares in Vodafone closed up 8 per cent in trading in London on Thursday on news of the deal. Its stock price has fallen about 40 per cent since the Verizon Wireless partnership was established in 1999.
Verizon's shareholders also seemed enthusiastic about the prospect of a deal. Its shares were up about 2.7 per cent, even though it would have to borrow billions to make the purchase happen.
The potential purchase would be one of the biggest corporate deals ever, trailing only Vodafone's $US202.8 billion takeover of the German mobile phone operator Mannesmann in 2000, and the $US181.6 billion merger of AOL and Time Warner in 2001, according to Thomson Reuters. Any transaction would be a bonanza for advisers to Verizon and Vodafone.
For Vodafone, the world's second-largest mobile phone operator behind China Mobile, an influx of cash would allow it to strengthen its struggling European operations. It would also allow Vodafone's investors to benefit through share buybacks.
"Vodafone investors are expecting a fairly material payout," Paul Marsch, an analyst at Berenberg Bank in London, said.
"They have been waiting for a very long time."
New York Times