September 2, 2013

Verizon buying out Vodafone's stake for $130 billion

The second-largest acquisition deal on record isn't expected to have much of an effect on Verizon consumers or its operations.

The Associated Press

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click image to enlarge

In this Monday, July 28, 2008, file photo, Eric Roden speaks on his cell phone as he walks past a Verizon store in Portland, Ore. Verizon says, Monday, Sept. 2, 2013, it has agreed to buy Vodafone's stake in Verizon Wireless for $130 billion.

The Associated Press

The Kabel deal will help Vodafone expand its foothold in Europe and gain 32.4 million mobile, 5 million broadband and 7.6 million direct TV customers in Germany. It has 19.2 million mobile customers in the UK, and it has been under intense competition.

"The proceeds from the sale, if not passed on in forms of dividends, could improve Vodafone's debt position following the recent Cable & Wireless and Kabel Deutschland deals, and provides Vodafone some leeway to further expand its network presence in Europe," said Ronald Klingebiel, telecommunications specialist at Warwick Business School.

The only question is whether Vodafone has waited too long to move on and to pick up companies that do things like provide mobile phone payments, advertising and security, Basta said.

Verizon wanted the profits that Vodaphone got due to its 45 percent stake in Verizon Wireless. Plus it couldn't afford to wait too much longer. The sums involved in the deal are so huge that Verizon feared that fears of pressure on interest rates inspired by U.S. economic recovery could make a purchase more expensive.

Verizon has had a long-standing interest in buying out its partner, but the two companies hadn't agreed on a price until now. Analysts said Verizon wanted to pay around $100 billion for Vodafone's stake, while reports suggested that Vodafone was pressing for the $130 billion it is in line to get.

The largest deal on record is Vodafone's $172 billion acquisition of Mannesmann AG in 2000, according to research firm Dealogic.

The sale will also allow Verizon to expand abroad. Vodafone has previously been asked could nix expansion under the terms of now defunct joint venture.

The telecommunications landscape is changing. The wireless business has been lucrative for Verizon Communications as traditional landline services decline.

But the company faces growing competition in a saturated market. No. 4 T-Mobile US Inc., for instance, is making a resurgence after shattering industry conventions, including two-year service contracts.

In the April-to-June quarter, Verizon Wireless added 941,000 devices to its contract-based plans, exceeding analyst estimates and continuing a strong run. It boosted service revenue by 8.3 percent from a year ago.

Its closest rival, AT&T, is seeing revenue increases of around 4 percent.

But almost all of Verizon's gains on the wireless side resulted from customers upgrading to higher-priced plans or adding more devices to their existing plans, rather than an influx of new customers.

Meanwhile, No. 3 wireless company Sprint Corp. received a $21.6 billion investment from SoftBank Corp. in July, giving the Japanese investment firm a 78 percent stake.

T-Mobile grew larger through a merger with smaller rival MetroPCS on April 30.

Separately, Verizon raised its quarterly dividend by a penny and a half to 53 cents. That makes its annual dividend $2.12 from $2.06.

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