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Verizon Said Near $130 Billion Buyout of Vodafone Venture

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Verizon Said Near $130 Billion Deal for Vodafone Wireless Stake
The Verizon Communications Inc. logo is seen at the International Consumer Electronics Show (CES) in Las Vegas. Photographer: Andrew Harrer/Bloomberg

Aug. 29 (Bloomberg) -- Verizon Communications Inc. is in advanced talks to acquire Vodafone Group Plc’s 45 percent stake in their U.S. wireless venture for about $130 billion, according to people with knowledge of the matter.

Verizon is working with several banks to raise $10 billion from each, or enough to finance about $60 billion of a buyout of Verizon Wireless, said two of the people, who asked not to be identified because the talks are private. An announcement could come as soon as Sept. 2, said the people.

The transaction would end a partnership of more than a decade that has paid billions in dividends to Vodafone while constraining Verizon from full ownership of the most profitable U.S. mobile-phone company. At $130 billion, the deal would be the biggest since Vodafone’s acquisition of Mannesmann AG in 2000 and would give the U.K. carrier’s finances a boost as it tries to revive operations hurt by Europe’s debt crisis.

“The reasons for a deal are well-rehearsed -- Verizon has rising other post-employment benefits liabilities and taxes it must address, and the debt markets may not be this benign forever,” Robin Bienenstock, an analyst at Sanford C. Bernstein in London, wrote in a July 19 note. “Vodafone on the other hand sees the coming weakness in the U.S. market and needs the cash to resolve structural problems at home.”

Italy Stake

As part of the acquisition, Verizon will probably sell back to Vodafone its 23 percent stake in Vodafone Italia, which could be worth around 4 billion euros ($5.3 billion), said two of the people.

Ben Padovan, a spokesman for Newbury, England-based Vodafone, didn’t immediately respond to a request for comment left outside regular business hours. Bob Varettoni, a spokesman for New York-based Verizon, declined to comment.

Vodafone, led by Chief Executive Officer Vittorio Colao, fell 0.4 percent yesterday to 189.30 pence in London. The carrier has a market value of 91.7 billion pounds ($142 billion). Verizon, which is run by Lowell McAdam, dropped 0.8 percent to $46.56 in New York, for a market capitalization of $133 billion.

Verizon and Vodafone have for years tried to resolve their relationship, with options ranging from a buyout of the venture to a full merger of the two companies, according to people familiar with the matter. Verizon, which owns 55 percent of Verizon Wireless, has control over whether and when the unit pays its owners dividends.

U.S. Consolidation

Speculation about a transaction heated up this year as Verizon’s stock reached a 13-year high in April, giving the company greater financial flexibility to make a bid. Vodafone, the world’s second-largest wireless operator behind China Mobile Ltd., has lost more than half its value since Verizon Wireless began service in 2000.

A buyout of Verizon Wireless would be the latest of a string of mergers and acquisitions in the U.S. mobile-phone market, which has surpassed Europe in technologies that enable faster Internet browsing and video streaming for computers and smartphones.

Deutsche Telekom AG completed a merger of its T-Mobile USA unit with MetroPCS Communications Inc. in May. Japan’s SoftBank Corp. in July completed its $21.6 billion acquisition of a controlling stake in Sprint Nextel Corp.

Landline Shrinks

Verizon’s fate is closely linked to the wireless venture it controls as the carrier invests in fiber-optic network for high-speed Internet service to help offset declining landline customers. Wireless accounted for 66 percent of Verizon’s 2012 revenue and almost all of its operating income. The carrier also relies on the mobile business to help fund its dividend, which amounted to about $5.2 billion last year.

The partnership originated in 1999 after Vodafone outbid Verizon’s predecessor, Bell Atlantic, for Airtouch Communications Inc., then the world’s largest wireless company. After acquiring Airtouch, Vodafone agreed to combine its mobile assets with Bell Atlantic to create a nationwide U.S. network. Shortly after, Bell Atlantic merged with GTE Corp., creating Verizon Communications Inc.

As Verizon Wireless went on an acquisition spree, buying spectrum and other companies to become the biggest U.S. mobile operator, Vodafone went without a dividend payment for years from the business. When Vodafone finally received a payout last year, it was the first since 2005.

Asset Sales

For Vodafone, a deal would cap Colao’s efforts to exit joint ventures where the company doesn’t have full control. In the past three years, Vodafone has divested stakes in French carrier SFR as well as phone holdings in Asia and Poland.

Vodafone holds one of the earlier deal records. Its previous incarnation, Vodafone Airtouch Plc, spent more than 150 billion euros in 2000 to acquire Germany’s Mannesmann. Time Warner’s combination with AOL brought in $124 billion in cash and stock when the two combined near the end of the technology bubble in 2001.

The cash from the U.S. stake sale would give Vodafone the wherewithal to make acquisitions and expand into faster-growing regions and businesses. In June, Vodafone agreed to buy Germany’s largest cable company for $10 billion. Nick Read, head of Africa, Asia and the Middle East, has said Vodafone is looking for opportunities to get bigger in Africa, where profit is predicted to overtake southern Europe in a few years.

Previous Attempts

Resolving Vodafone’s stake has been a topic of discussion for years. In 2004, the two companies got close to a deal. Vodafone agreed to sell its stake in Verizon Wireless if it won a bid for AT&T Wireless. The AT&T deal fell through, and so did the agreement with Verizon.

Vodafone also had an option to sell its stake in Verizon Wireless in 2006 and 2007. The company let that option expire.

It came up again in 2009, when Colao, on the job for just over a year, told a conference in Barcelona that he intended to “solve” Vodafone’s lack of control over Verizon Wireless and that he would consider selling the stake or merging with Verizon.

The Wall Street Journal reported yesterday that Verizon and Vodafone rekindled talks about a buyout of the wireless venture and that Verizon was in talks with banks for loans needed to complete the deal.

To contact the reporters on this story: Jeffrey McCracken in New York at jmccracken3@bloomberg.net; Olga Kharif in Portland at okharif@bloomberg.net; Amy Thomson in London at athomson6@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net; Jeffrey McCracken at jmccracken3@bloomberg.net; Nick Turner at nturner7@bloomberg.net

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