Vodafone Group PLC said on Thursday that it was in talks with Verizon Communications Inc to sell its prized stake in Verizon Wireless, the number one U.S. mobile carrier, in what would be the third-biggest deal of all time.
Verizon has made no secret of its desire to gain full ownership of a network that is growing at a rapid rate and generating billions of dollars in free cash flow, but the companies have tussled over how such a deal should be valued.
Vodafone's Chief Executive Vittorio Colao has bided his time, waiting for the optimal moment to sell the 45 percent stake in a deal that would leave the world's second largest mobile operator with assets in Europe and emerging markets such as India, Turkey and Africa.
Verizon and Vodafone were discussing a sale for around $130 billion in talks that had resumed a few weeks ago, according to a person familiar with the situation, who asked not to be named. The person said on Thursday that an announcement could come as soon as the first week of September. A second source said the announcement could come on September 2.
Bloomberg also reported late on Wednesday that Verizon could pay as much as $130 billion and is working with several banks to raise $10 billion from each to finance about $60 billion of the deal. It said an announcement could come as soon as September 2, citing two unnamed sources.
Reuters reported in April that Verizon had hired advisers for a possible $100 billion bid, an opening gambit that analysts and investors said was too low, putting the value of Vodafone's holding nearer $120 billion.
The statement from Vodafone on Thursday confirming talks sent its shares up 9 percent to a 12-year high of 207 pence as investors and analysts said a deal could finally be on the cards. Shares in Verizon rose 4 percent in New York.
As U.S. growth slows, because most of the U.S. population already own smartphones, and competition intensifies, Verizon is under pressure to find ways to keep growing. Despite the steep deal prices being discussed, Verizon investors expect handsome rewards from full Verizon Wireless ownership.
The only M&A deals bigger than this would be Vodafone's $203 billion takeover of Germany's Mannesmann in 1999 and AOL's $165 billion acquisition of Time Warner the following year.
Vodafone has changed its strategy from being a pure mobile operator, where revenues are under pressure from competition and regulation, to offering combined services such as television and fixed line broadband. To that end it has agreed to buy Kabel Deutschland for 7.7 billion euros.
The stake in Verizon Wireless has become increasingly valuable to Vodafone as its fortunes have waned in its core European markets.
The Wall Street Journal said significant shifts in financial markets, such as rising interest rates as well as changes in the U.S. cellphone business had brought the two sides closer together.
A Verizon representative declined to comment on the Bloomberg and Wall Street Journal reports.
Vodafone investors and analysts expect the company, which has $30.6 billion of debt according to Thomson Reuters data, to return a lot of the proceeds of a deal to shareholders, rather than embarking on more M&A or paying down borrowing.