Verizon Communications Inc. (VZ - Analyst Report) announced on Tuesday, the issuance of approximately 1.27 billion of its shares to Vodafone Group Plc (VOD - Analyst Report) pertaining to its acquisition of the latter’s remaining 45% interest in Verizon Wireless. Both the companies expect to close the deal by Feb 21, 2014 subject to regulatory approvals.
The market reacted positively to the news and the stock price of Verizon closed at $46.53 on Wednesday, approximately 1% higher than the previous closing.
In Dec 2013, Verizon finally won the U.S. Federal Communications Commission (FCC) approval for its $130 billion purchase of Vodafone’s stake in its wireless venture. The deal included cash proceeds of $58.9 billion and $60.2 billion in Verizon shares.
Both the companies have been mulling over this deal over a long time and news surfaced in early 2013 about Verizon planning the buyout.
For Verizon, the total buyout of its wireless business would mean saving a substantial amount of the payment that slips to Vodafone’s pocket. Verizon Wireless, with operating income over $21 billion not only remains a key driver of Verizon Communications’ earnings, but also provides a competitive edge over big names like AT&T, Inc. (T - Analyst Report) and the rapidly growing Sprint Corp. (S - Analyst Report) .
This deal is touted as one of the biggest in the telecom space after Vodafone’s acquisition of Germany’s Mannesmann AG in 2000 (for approximately $142 billion) and Time Warner Inc.’s merger with AOL (for $124 billion) in 2001. We believe the complete takeover of its wireless business would translate into greater synergies for Verizon, which already holds a significant place in the U.S. wireless market.