In a multibillion dollar deal that could shake up the industry, Verizon Communications is once again in talks to buy Vodafone's wireless business. Some are predicting the deal could be worth more than $130 billion.
This is not just a rumor. Vodafone has confirmed that it is discussing the possibilities of selling its 45 percent stake in Verizon Wireless. Verizon and Vodafone have been partners since 1999 and the joint venture has been especially profitable for both companies. Verizon's shares rose 3 percent on the news.
"Vodafone notes the recent press speculation and confirms that it is in discussions with Verizon Communications regarding the possible disposal of Vodafone's U.S. group whose principal asset is its 45% interest in Verizon Wireless," Vodafone said in a statement Thursday. "There is no certainty that an agreement will be reached."
Don't Hold Your Breath
Verizon Communications has long been interested in the stake of the wireless division it doesn't own. The rub has been pricing. According to the Wall Street Journal, Verizon wants to pay about $100 billion but Vodafone wants to realize closer to $130 billion on the sale.
"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. "Vodafone on the other hand sees the coming weakness in the U.S. market and needs the cash to resolve structural problems at home."
We asked Jeff Kagan, an independent wireless analyst, about the Verizon-Vodafone talks. He told us not to get all excited about the news just yet. That's because several similar stories have been reported over the years.
"The desire is there, but they just never get it together. Will it occur this time? Verizon wants this. Vodafone wants this. The reason it has not happened yet is the difference in price," Kagan said.
"However every year Verizon Wireless gets larger and costs more. So from this perspective, if they were going to do this, they should have done it years ago. It would have cost them much less. Perhaps they realize that now. If so, perhaps this deal can finally get done. There are also added pressures, which include growing competition from Sprint and T-Mobile USA, rising interest rates and taxes."
A New Inning
Rumors are that Vodafone now also has an interest in getting this deal done. According to Forbes, Vodafone is moving to expand its operations with the acquisition of Kabel Deutschland. That $10.3 billion deal, which German regulators approved last week, gives Vodafone a toehold in Germany and could help make up for the revenue it would lose by selling off the Verizon Wireless stake.
"Based on past performance, I would expect we will get all excited with anticipation, then let down when it fails to occur. Let's stay tuned. It should happen at some point. Maybe this time, is that point," Kagan said.
"Vodafone has been reluctant in the past to sell to Verizon because their own core business is slowing. Verizon is looking to expand by completely owning Verizon Wireless and by moving into other markets like Canada. This new inning of this long game is just getting started," he added.