It's Official: Verizon To Pay Vodafone $130 Billion In Wireless Deal
It finally happened
After off and on talks, a $30 billion price swing and a “you had me at hello,” back story, Verizon (NYSE: VZ) and Vodafone (NASDAQ: VOD) finally came to an agreement that has Vodafone selling its 45 percent stake in Verizon Wireless to Verizon Communications for $130 billion, ending a 14 year marriage that was rarely on good terms.
Vodafone will receive $58.9 billion in cash, $60.2 billion worth of Verizon stock, and $11 billion from “smaller transactions.” The deal, which is the third largest in history, is expected to close at the beginning of next year.
Interestingly, after years of arguing and bickering, the deal was jump started in a hotel workout facility in San Francisco, according to Reuters. Vodafone CEO, Vittorio Colao and Verizon CEO, Lowell McAdam apparently started chatting while on exercise bikes and later had breakfast together where the deal was discussed further.
But, despite the storybook "bromance" between the two, from a business perspective the companies can now part ways with Vodafone looking to be in a better position than Verizon, at least for the short term.
Vodafone gets cash that it will use to pay down debt, first and foremost. He said, "We are reducing our debt level which will enable the company to be very robust and take opportunities if they arise."
This gives Vodafone options it didn’t have before in its battle to grow in a European market that is still feeling the effects of the economic decline of recent years.
Verizon gains debt and a lot of it. The $67 billion in fresh debt sparked a Moody’s downgrade while leaving other analysts concerned. Macquarie analyst Kevin Smithen said, "It probably, in the short term at least, limits Verizon's ability to do other large transactions.”
But with money still cheap, this was the perfect time to pen the deal that was in the making for years. Verizon no longer has to bicker with Vodafone over dividend payments and ends a relationship that has cost Verizon time and financial resources for years. For those reasons alone, this may have been money well spent even if the price tag was a little high.
Disclosure: At the time of this writing, Tim Parker was long Verizon.
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