International telecom giant Vodafone confirmed this morning that it was in talks with Verizon Communications over a possible sale of its 45% stake in domestic operator Verizon Wireless, following years of rumors.
In a statement, Vodafone said: “Vodafone notes the recent press speculation and confirms that it is in discussions with Verizon Communications Inc. regarding the possible disposal of Vodafone’s U.S. group whose principal asset is its 45% interest in Verizon Wireless. There is no certainty that an agreement will be reached.”
Vodafone has been rumored to be selling off its 45% stake in Verizon Wireless for years, with those reports heating up in the past several months, including potential prices of up to $130 billion. Last month Vodafone Chairman Gerard Kleisterlee told investors that the telecom giant would be open to a potential sale of its 45% stake in the U.S. wireless carrier.
“If we see proposals that generate more value for shareholders we will consider them,” Kleisterlee told investors during a conference call, according to Reuters. “There is ongoing communication (that involves) the full board. Both executives and non-executives are involved in those negotiations with Verizon.”
The value of Verizon Wireless can be seen in the $25.5 billion in dividends the operations have paid out over the past two years.
Vodafone has over the past several years begun to change its focus, purchasing more cable and wireline operations, while exiting some of its wireless businesses. Vodafone last year acquired Cable & Wireless Worldwide for $1.7 billion in a move to bolster its enterprise business in the U.K. and around the world, and more recently acquired Kabel Deutschland for $10 billion.
Analysts noted the sale of its Verizon Wireless stake could help Vodafone pay down some of those more recent investments.
“The proceeds from the sale, if not passed on in forms of dividends, could improve its debt position following the recent Cable & Wireless and Kabel Deutschland deals, and provides Vodafone some leeway to further expand its network presence in Europe,” explained Warwick Business School assistant professor of strategy Ronald Klingebiel. “Such moves provide the capacity and level of integration necessary for competing effectively in a future pan-European market.”
Verizon’s management for its part has been quiet on the possibility of buying out Vodafone’s stake in Verizon Wireless, which it received following the formation of Verizon Wireless in 2000, but has said it would be interested in gaining full control of the operations. Analysts reported that at a meeting with Verizon executives earlier this year, CEO Lowell McAdam said that buying out Vodafone’s stake in Verizon Wireless is the “No. 1” move the company could make to increase shareholder value.
The move would put Verizon on more equal footing with domestic rival AT&T, which has full control over AT&T Mobility. While AT&T Mobility has recently not been able to match Verizon Wireless’ financial strength, AT&T is able to glean the full financial benefits from its wireless operations. Verizon Wireless posted $6.4 billion in operating income for the first quarter of this year while AT&T Mobility reported $4.6 billion in net income for the first quarter.
“We believe any step toward resolution of this ownership as a significant positive for the (Verizon) shares,” noted Jennifer Fritzsche, senior analyst at Wells Fargo Securities. “This has been a long standing overhang on (Verizon) shares. The free cash flow power of the (Verizon Wireless) ‘machine’ would help further strengthen (Verizon’s) already solid cash flow position and payout ratio.”
Verizon’s stock (VZ) was trading up more than 3% early Thursday.
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