On Monday Verizon Communications agreed to buy the U.S. wireless business from Vodafone Group for $130 billion, making history as the third largest corporate deal announcement.
For Verizon this will mean full access to the profits from the United States largest mobile operator. It will give the company the power needed to ward off competition in this ever increasing tough market.
Meanwhile Vodafone Group will be able to return 71 percent of the net proceeds – that is $84 billion including all the stock – to shareholders, as well as increasing investment in its networks to set it apart from its rivals.
The deal has come about thanks to the two companies’ chief executives, Vittorio Colao and Lowell McAdam. Although there has been a history of clashes surrounding the Wireless dividend and full ownership, the two men have rebuilt the relationship. After discussing the possibilty of combining Verizon and Vodafone, it was decided that a stake sale was more benficial for both parties.
Under the terms, Vodafone will get $58.9 billion in cash, $60.2 billion in Verizon stock, and an additional $11 billion from smaller transactions in a deal that is due to close in the first quarter of next year.
Colao told reporters, “We think we have a balanced approach here. We are reducing our debt level which will enable the company to be very robust and take opportunities if they arise.”
McAdam said that it was a self-funding transaction as Verizon’s earnings per share will increase immediately by 10 percent.
“I think there’s going to be a burst of rocket fuel in the Verizon engine as a result of this transaction,” he said. He added that the tie was right to buy.
Analysts feel that this new debt for Verizon will limit its ability to carry out major investments for some time into the future, as paying off the debt will become a priority.
All of this should not affect the company’s 100 million customers though and once some of the debt has been repaid, it will have the power neccessary to compete against rivals.
[Image via Cult of Android]