Vodafone and Verizon: A Billion-Dollar Deal of Historical Proportions

Before the final agreement on the third-largest corporate deal of all time, Vodafone rejected a $95 billion acquisition offer from Verizon Communications for its stake in their joint U.S. mobile business. This information was revealed in documents filed by Verizon in New York on Wednesday. Instead, Vodafone proposed a merger into a global telecommunications company and ultimately maintained a demand for an additional $35 billion for its 45% stake in Verizon Wireless. Verizon's shareholder document sheds light on the complex negotiations behind one of the most anticipated deals in telecommunications history. It also disclosed that a compensation fee of up to $10 billion would be payable if the deal were to fail due to financing issues. However, Vodafone would have to pay up to $1.6 billion to Verizon if shareholders did not approve the deal at an upcoming meeting, increasing the financial pressure on the deal welcomed by investors. The proxy document outlines the expected timeline of the transaction and indicates that the purchase price Verizon must pay increases by $10 million in cash each day if the deal is not completed before the beginning of May next year. Verizon anticipates costs of about $250 million related to the deal, including fees for investment banks, but excluding financing costs. Advising Verizon were Guggenheim Securities, Morgan Stanley, JPMorgan, and Paul Taubman, a former Morgan Stanley banker. The estimated total costs amount to $600 million. JPMorgan and Morgan Stanley will receive fees of approximately $129 million each, including payments for financial services. As a result of the deal, Verizon shares will also be traded in London alongside their current listing on the NYSE and Nasdaq. Vodafone shareholders, who receive both cash and Verizon shares as part of the deal, will ultimately own between 29% and 31% of Verizon. Discussions about the sale of Vodafone's stake in Verizon Wireless have been ongoing since 2004, when the two companies held advanced talks. The final negotiations proceeded relatively swiftly this summer. Verizon began formal negotiations in January to buy Vodafone's stake in its mobile business. After six months of negotiation, the two companies raised the price to $130 billion. On January 24, Lowell McAdam, Verizon's CEO, met with his Vodafone counterpart Vittorio Colao and made an initial offer of $95 billion. Vodafone rejected the offer as insufficient, but Colao suggested that Verizon consider a merger. Talks concerning a transaction involving either a sale or merger continued until spring, before Verizon ruled out a merger in April, following a request from the UK financial regulator to clarify its intentions. Instead, the focus shifted to acquiring the 45% stake in Verizon Wireless. In June, Verizon's board authorized management to make a formal $120 billion offer to Vodafone, which was presented at a meeting in Amsterdam. Vodafone responded with a demand for approximately $140 billion in cash, including taxes. In August, following Vodafone's full-year results and a U.S. investor roadshow, Colao contacted McAdam to accept a "best and final" offer of $130 billion, which Verizon agreed to in order to execute the deal in September when an opportunity to access debt markets was seen. The deal has not yet received shareholder approval, but this is not considered a problem. Sources close to the companies suggested that the deal is likely to be completed in the first quarter of next year. Vodafone declined to comment. Verizon was not immediately available for comment.