After years of will they, won’t they?, Vodafone and Verizon have finally gone their separate ways, hashing out a deal which will go down as the third biggest corporate agreement ever.
The only larger deals in corporate history were Vodafone’s $183bn acquisition of Mannesmann in 2000 and internet giant AOL’s $182bn takeover of Time Warner in 2001.
Verizon’s £84bn ($130bn) acquisition of Vodafone’s 45% stake in the American telecoms giant has caused quite a stir.
Analysts and economists are talking about the positive knock-on effect it will have on the economy and the rest of the telecoms business.
Predictions are already being made about a flurry of activity in the telecoms market, and both private investors and pension funds being set to benefit from the £54bn proceeds expected to be returned to Vodafone’s investors. Nearly half of that, £22bn, will go to UK investors.
However, investors are not the only ones set to benefit. The industry will also be getting a boost through the investment Vodafone has committed to ploughing into the network.
Project Spring, a scheme to make organic investments, will see Vodafone spending £6bn over the next three years on updating the network and boosting its presence on the high street.
Speaking about the deal, Vodafone group chief executive Vittoria Colao was keen to explain the long-term benefits to shareholders and users alike.
‘As a result of the transactions, we will also greatly enhance Vodafone’s long-term prospects through Project Spring, our new programme of additional organic investments in 4G, 3G, fibre and broadband, enterprise services and improved customer experience across all of our markets.
‘Project Spring will strengthen and accelerate our existing Vodafone 2015 strategy, enabling us to take even greater advantage of the growing global demand for ubiquitous high-speed data.’
End of a special relationship
The deal ends a relationship characterised by wrangling, tussles and protracted negotiations.
Vodafone’s 45% stake has proved to be a thorn in the side of the American telecoms giant, which has previously made efforts to take full control of the company.
Verizon will now be in a position to confirm its place as America’s leading mobile provider without having to deal with a partner and most importantly share its profits. Verizon chief executive Lowell McAdam described the agreement as “transformational”.
The terms of the deal will result in Vodafone getting £38bn in cash, £39bn in Verizon shares and an additional £7bn from smaller transactions. Vodafone will also be taking on Verizon’s 23.1% stake in Italian network, Omnitel, as part of the deal.
Colao and McAdam, who have known each other for 20 years, are understood to have started considering how to resolve the gulf between the two companies in Autumn last year. During the negotiation period they ruled out a merger and started negotiating on a price.
In April it was reported that Verizon had put in an opening bid of $100m, but that was rejected with Vodafone pushing for the higher figure and landing it - resulting in the historic deal.
The deal is expected to be completed in Q1 2014 and observers will be waiting to see what Vodafone’s next move will be.