The largest U.S. wireless carrier is now 100% American.
of the most expensive acquisition deals ever, U.K.-based Vodafone said
Monday it agreed to sell its 45% stake in Verizon Wireless to Verizon
Communications for $130 billion in cash and stock.
pay $58.9 billion in cash and $60.2 billion worth of Verizon shares, as
well as $5 billion in Verizon loan notes, $3.5 billion in Verizon's 23%
interest in Vodafone Italy and $2.5 billion in assumption of Vodafone's
Once the transaction is completed, Verizon will wholly own
the wireless unit, giving the company more flexibility and options to
manage growth in the lucrative mobile data market.
Verizon, a U.S.
telecom giant that offers Internet, TV and phone service, owned 55% of
Verizon Wireless and has wanted to buy the rest for years. But until
now, it was never able to agree on a price with its U.K.-based partner.
$130 billion, the deal would be the third largest mergers and
acquisition transaction ever and would boost worldwide telecom deals to
$224.3 billion this year, according to Thomson Reuters. Currently, the
telecom deals that have been announced worldwide total $94.3 billion, up
28% from the same period last year.
Verizon's desire to fully own
the wireless unit has intensified in recent years as consumers' demand
for all things mobile grows unabated. Meanwhile, Vodafone's revenue has
been declining, prompting the U.K.-based telecommunications company to
seek cash and focus on operations in Europe and emerging markets.
intends to implement a new organic investment program, Project Spring,
to establish further network and service leadership through additional
investments of £6 billion ($9.35 billion) over the next three financial
years," Vodafone said in a statement.
While nearly all adults in
the U.S. carry a mobile phone, demand for other home devices that may
require wireless connections - such as tablets, thermostats,
refrigerators, home security equipment and cameras - is growing.
responding to the trend, U.S. wireless carriers have rolled out
data-sharing plans that can be accessed by all family members, and they
will make up for the losses in voice and text revenues.
the saturated market, (Verizon Wireless) continues to post growth
figures," said Bill Menezes, an industry analyst at research firm
Gartner. "They don't even post average revenue per user numbers anymore.
They post average revenue per account. They're looking at a world where
growth is coming from these ancillary devices."
was formed in 2000 after what was then Bell Atlantic formed a joint
venture with Vodafone for a wireless carrier service in the U.S. During
the formation of the wireless venture, Bell Atlantic merged with GTE to
form Verizon Communications.
The two companies were close to a
deal in April but couldn't pull the trigger, analysts said. When the two
companies were negotiating in April, analysts said Verizon was looking
to pay about $100 billion for the stake, while Vodafone was holding out
for about $130 billion.
But favorable conditions in the financing
market likely drove Verizon to pick up its pace. "Interest rates are
going up and that could be the driver," said Roger Entner, a wireless
industry analyst at Recon Analytics. "Financing the deal becomes
Still, the $130 billion valuation for a
45% stake - or eight times the company's earnings before interest, taxes
and other items - may be too high for Verizon shareholders, according
to Christopher King, an analyst at Stifel Nicolaus. "It's an attractive
valuation for Vodafone," he said.
The rate of mobile device
adoption is slowing from its early years in the U.S., but seizing full
control of the largest U.S. carrier would give Verizon multiple
strategic options for future growth.
In the most recent quarter,
Verizon Wireless' service revenue grew 8.3% year-over-year as the total
number of connections exceeded 100 million. Its 4G LTE coverage - the
fastest data network type available in the U.S. - is available in 500
markets across the U.S.
With Verizon fully under its umbrella of
operations, it can integrate the wired and wireless units more deeply,
particularly in back-end operations and IT systems, Entner said. "They
can also seamlessly bundle the bill. They can do more joint marketing,"
Verizon set up its "Enterprise Solutions" unit to target
business customers, but the limited ownership of the wireless service
has kept it in check, Menezes said. "They can offer more unified
offerings. It took a long time to structure (the enterprise unit). In
talking to businesses, customers say they still have to talk to two
different companies," he said.
Verizon Wireless has plans to
expand into Canada by buying the rights to some of the country's
wireless airwaves, or spectrum, but having to continuously report to
Vodafone - which is looking to narrow its market focus to Europe and
other emerging areas - would have complicated matters, he said.
has its own share of financial issues that are driving the decision to
unload the share. The company's service revenue fell 3.5% in the most
recent quarter, and "there's a lot of pressure" to reassess its
priorities on where to expand and shrink business exposure, said Chetan
Sharma, an independent wireless industry analyst in Seattle. "They have
more incentives to make a deal," he said. "If the economic conditions in
Europe were better, it'd have let (its stake in Verizon Wireless)
continue to grow. But it needs to consolidate its core markets."
the competitive landscape in the wireless industry is shifting as
smaller competitors tighten their operations, introduce aggressively low
pricing and seek out deals to combat larger carriers.
Japan's Softbank paid $21.6 billion to buy 78% of Sprint, giving the
Overland Park, Kan.-based company a much-needed cash infusion to grow
its wireless network and greater bargaining leverage against phone
T-Mobile struggled for years as the fourth largest carrier
in the U.S., but its business outlook has brightened in recent months
following the acquisition of MetroPCS this year that added about 9
T-Mobile said in August that it added 1.1
million customers in the second quarter (after accounting for those who
dropped the service). Its post-paid plans, considered the most
profitable part of the wireless business, drew 688,000 new customers
during the quarter.