Verizon offers $130 billion to buy out Vodafone

Verizon Communications Inc. is in advanced talks to acquire Vodafone Group’s 45% 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.

Discussions have taken place in the past but the two companies have been thought to be far apart on the valuation of the business, in which Verizon holds the remaining 55% stake.
Shares in Vodafone opened 9% higher in London on Thursday on confirmation of talks. However, Vodafone added: “There is no certainty that an agreement will be reached.”

“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 cited by Bloomberg. “Vodafone on the other hand sees the coming weakness in the U.S. market and needs the cash to resolve structural problems at home.”

Speculation about a possible 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.

Vodafones strategic ambitions are becoming clearer. The carrier offered roughly $10 billion in June to acquire control of Germanys largest cable operator, Kabel Deutschland Holding AG. Vodafone said it expects to complete the deal by the end of the year. Through this acquisition, Vodafone is attempting to broaden its product range beyond mobile services amid pressure on wireless service revenue in European markets, especially in the southern part of the continent. The deal will widen Vodafones offering in the key German market and could lead to similar moves in other European countries as consolidation in the global telecommunications industry continues.