Verizon Communications’ management does not believe it should have to pay a premium to buy out Vodafone’s 45% stake in their joint-venture Verizon Wireless.
Verizon’s chairman and CEO Lowell McAdam told JP Morgan analysts that the New York-based…
Verizon Communications’ management does not believe it should have to pay a premium to buy out Vodafone’s 45% stake in their joint-venture Verizon Wireless.
Verizon’s chairman and CEO Lowell McAdam told JP Morgan analysts that the New York-based telco did not feel a premium was warranted for the acquisition of a minority stake.
This is because Verizon already has management control, according to a research note from the bank.
Selling to Verizon is the best option for Vodafone if it wanted to monetise its stake – the other option, an IPO, would potentially create a larger tax bill, the memo said.
Verizon management also indicated that a Verizon Wireless dividend would not be forthcoming this year as cash flow would be used to pay down debt, before rewarding shareholders. They noted that US$5bn of Verizon Wireless’ US$10bn gross debt is due between now and H1 2014.
The US incumbent is also looking abroad to expand, not through large purchases but “beach heads” that could utilise Verizon’s global IP backbone and data centres.
Verizon said to push forward with financing
Vodafone’s board has reportedly asked banks to lay out financing options which it could use to buy Vodafone’s stake, according to Sky News citing unnamed senior bankers.
The report said JP Morgan is understood to be preparing to offer some of their “biggest ever loan facilities” to part finance a potential deal.
Verizon may look to raise financing from a large lending syndicate, and then issue a variety of notes taking advantage of the favourable debt market climate, the report said, referencing people close to the situation.
The companies are still apart in terms of valuation. Verizon is reported to want to pay US$100m, while Vodafone would be looking for an offer of US$120bn plus according to analysts.
Another barrier is the substantial tax Vodafone is expected to have to pay on the proceeds from a potential sale. However, recent reports have suggested it may be able get away with paying a fraction of what was previously anticipated due to the substantial shareholding exemption. Under this statute Vodafone would pay no corporation tax on the gain because it holds more than 10% of the target and has held its stake for more than 12 months. Vodafone’s US tax bill on a transaction could reportedly be around US$5bn.
Goldman Sachs and UBS are reportedly advising Vodafone on the situation.
