Vodafone plc of the U.K. has confirmed that it is in talks with Verizon for a possible deal to sell its 45 percent stake in Verizon Wireless.
Verizon is looking at offering around $100 billion for the U.K.-based telecom giant’s stake. But the U.K. group is pressing for as much as $130 billion. Vodafone is still uncertain about an outcome.
Earlier, discussion between Vodafone and Verizon broke down due to valuation and tax issues. ( Vodafone may exit Verizon netting $135 billion )
The main benefit to Vodafone will be its power to buy more telecom assets. It could expand in Asia by buying Airtel. Vodafone has a 5 percent stake in Bharti Airtel. If it buys Airtel, Vodafone can augment its presence in Asia and Africa.
Currently,Vodafone relies on emerging markets including India — revenue grew at 9 percent; Vodacom 1.9 percent and Turkey 18.4 percent in third quarter of 2012-13.
Vodafone can also pay down debt. The U.K.-based telecom giant can also reduce its net debt that was already reduced to £23.3 billion in Q3 of 2012-13 after receipt of £2.4 billion dividend from Verizon Wireless.
Verizon is seeking $60 billion in financing to back its potential purchase of Vodafone Group Plc’s stake in its wireless unit. The New York-based company is negotiating with several banks to raise about half that amount.
Vodafone, if the talks reach a deal, will be forced to look at other revenue streams for future growth. At present, Vodafone’s investment in Verizon is bringing significant revenue as compared with other developed markets which are showing decrease in revenue growth. In Q3 2012-13, Verizon Wireless service revenue grew 8.7 percent driven by strong customer additions.
The deal will be a hit on Verizon balance sheet. Verizon Wireless has a net debt of $9.3 billion ($0.7 billion net cash) after payment of $8.5 billion dividend to its parents. Vodafone’s net debt is £23.3 billion.
A disposal in the next couple of months would represent the most lucrative overseas investment by a British company, according to media reports in March. Verizon Wireless, which is forecast to make a profit of $34 billion this year, is worth between $240 billion and $300 billion.
Baburajan K
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