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Windfall for Vodafone with $130 bln Verizon Wireless deal

Windfall for Vodafone with $130 bln Verizon Wireless deal
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A huge and historic deal has been announced in the telecoms world as US company Verizon said it was buying the 45 percent of its mobile phone business that its did not already own.

It is to pay 130 billion dollars – almost 100 billion euros – for Verizon Wireless in a mixture of cash and stock.

The seller is Britain’s Vodafone, which can use the proceeds to pay down its debt which is currently the equivalent of nearly 30 billion euros. It can also give some to its shareholders and make acquisitions to grow the company:

Ishaq Siddiqi, a market strategist with ETC Capital Markets said: “One hundred and thirty billion dollars is a lot of money for Vodafone, the market cap currently stands at 152 billion dollars after this proposed deal. Now in terms of how to make that money work, it’s going to have to go back into the company, they’re going to have to pay back an enormous amount of debt.”

Verizon, is happy to have finally gained full ownership of a network that is growing fast and generating billions of dollars in free cash flow.

The question is has it overpaid?

Wall Street was closed for a holiday on the day the deal was announced. We will find out what investors think when the markets reopen on Tuesday.

The rating agencies certainly did not like how much money was being borrowed Moody’s and Standard & Poor’s downgraded the debt ratings of Verizon Communications as soon as the purchase was announced.

Verizon said it expects the transaction to increase earnings per share by about 10 percent, without any one-time adjustments.

The boards of Verizon and Vodafone have unanimously approved the sale, which is subject to customary closing conditions, and was expected to close in the first quarter of 2014.

Colao commitment

Hours after the deal was confirmed, Vodafone Chief Executive Vittorio Colao said he was committed to the next stage in the mobile operator’s history.

“I am super committed to the next chapter of Vodafone, that is chapter three, after the creation and expansion into emerging markets, now we have data and unified services so I am very excited about the future,” he told reporters when asked whether the deal was the pinnacle of his career.

He said the group would continue its disciplined approach to acquisitions and would invest in data infrastructure in Europe and emerging markets on a market-by-market basis.

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