More on Vodafone's possible buyout of Verizon Communications

[Laaate]

Vodafone Looks
At Option Two:
Verizon Buyout

By ALMAR LATOUR, KEN BROWN and JESSE DRUCKER
Staff Reporters of THE WALL STREET JOURNAL

Vodafone Group PLC finally announced Monday that it was considering acquiring AT&T Wireless Services Inc. The market shrugged in response.

But Vodafone Group did not show all its cards. The world's largest wireless carrier is also looking at making an offer for all of Verizon Communications Inc., the biggest phone company in the U.S., people close to Vodafone said.

Though it is unlikely, the move, dubbed "the Big Bang" theory, would have Vodafone keep Verizon Wireless, the business it covets, and spin off the rest of Verizon.

Such a deal would have major hurdles. It would be massive -- requiring Vodafone to shell out at least $150 billion. It would have to clear intense regulatory scrutiny and it would likely necessitate a hostile takeover.

Vodafone, which only owns wireless operations, could recoup some of the cost of the deal with the wire-line spinoff, assuming it could find a willing buyer. People close to the situation say Vodafone is intent on considering all options.

Vodafone's public and private musings highlight the wide-ranging implications caused by the decision of AT&T Wireless to put itself on the block.

For those who don't follow the rollicking world of telecom deal-making, here's a recap. Cingular Wireless, a joint venture of SBC Communications Inc. and BellSouth Corp., informally offered to buy AT&T Wireless last month for $30 billion. Weeks later, AT&T Wireless, which has struggled recently, put itself up for auction.

That announcement sparked interest from major cellphone companies such as NTT DoCoMo Inc. of Japan and Nextel Communications Inc., as well as Vodafone and Cingular. Vodafone's ambitions are restrained by its 45% ownership stake in Verizon Wireless, the nation's biggest cellphone company. Verizon Communications owns the remaining 55%.

To buy AT&T Wireless, Vodafone would have to get out of that partnership, and it has the right to force Verizon to pay it to do so. The two companies are negotiating a deal that would have Verizon pay Vodafone somewhere north of $20 billion for its stake in Verizon Wireless. Vodafone presumably would put that money toward buying AT&T Wireless.

The fact that Vodafone has looked at various options shows the company may be seeking to increase its leverage in its ongoing negotiations with Verizon.

With Vodafone in the hunt, Cingular Wireless meanwhile has continued talking to T-Mobile USA Inc., which is owned by Deutsche Telekom AG, about a possible merger in case the AT&T deal doesn't work out. Bids for AT&T Wireless are due on Friday (the 13th, as it happens) and Vodafone is likely to decide by then whether to bid for AT&T Wireless, launch a takeover of Verizon Communications, pursue other options, or just stay put.

Several analysts have already speculated that Vodafone would be better off buying all of Verizon Communications than AT&T Wireless, and some investors agreed. Such a move would fit with Vodafone's strategy of buying the No. 1 or No. 2 carrier in a market. Indeed, the carrier historically has had far less success when it bought a smaller player.

"As a concept, I like it," says Tim O'Brien, a portfolio manager at Evergreen Investment Management, who runs the firm's Utility and Telecom fund and owns shares in Verizon but not Vodafone. "I don't think it's going to happen, it looks to me like there's potentially upside and there's not really a lot of downside from being long Verizon."

Verizon wouldn't comment on Vodafone's intentions, but its managers appear to be dead set against selling the company.

If Vodafone decides to do the Big Bang, it won't be the first time the company tried something this audacious. In 1999, Vodafone launched a hostile takeover bid for Germany's Mannesmann AG in an effort to get that company's cellphone assets. Few people thought the then-small U.K. company would succeed, but it closed the deal, sold off the nonwireless assets and became the world's largest wireless company.

Vodafone got to Mannesmann in the first place because it had bought AirTouch Communications Inc., where the chief operating officer was Arun Sarin, who has run Vodafone since last summer. Vodafone had snatched AirTouch from the hands of one of Verizon's predecessors, Bell Atlantic, which had thought it had a deal. Vodafone ultimately combined AirTouch's U.S. operations with those of Verizon to create Verizon Wireless.

Despite talk of the Big Bang, a deal between Vodafone and AT&T Wireless is still considered more likely than a Vodafone takeover of Verizon. For one thing, Vodafone and AT&T Wireless share the same wireless technology, which is why the deal is so attractive to Vodafone. Also, such a deal would be much simpler, cheaper and easier to execute.

Investors seem unfazed by all this talk. Shares of the major players have been flat in recent days. That's in contrast to last summer, when there was speculation that Vodafone would seek to cash out its stake in Verizon Wireless. Investors were concerned that Verizon, carrying a heavy debt load, would have trouble coming up with the billions necessary to pay off Vodafone.

Now that Vodafone really looks like it's going to quit the partnership, investors don't seem worried about Verizon. The company has cut its debt load from $63.3 billion at the end of 2001 to $42.5 billion currently, has lots of cash flow and has what is arguably the best wireless franchise in the U.S.

Maybe they should be.

If Vodafone does decide to buy AT&T Wireless, the U.S. cellphone industry will have added a smart, aggressive new competitor.

"I think the negative thing for investors would be we would not see real consolidation, and we would eventually see the entry of a formidable competitor in Vodafone," says Michael Balhoff, an analyst who oversees the telecom group at Legg Mason.

In other words, instead of the long hoped-for consolidation in the wireless industry, there would be unconsolidation.

While consumers could benefit from lower prices, wireless operations could face even more price competition, lower prices and higher capital spending. That could spur a new wave of deals, or leave the U.S. with two dominant cellphone companies and a handful of also-rans.

[jayc]

What a twist. [img]i/expressions/face-icon-small-wink.gif[/img] I think this is why VZW decided not to go public yet.

[jayc]

Analysts skeptical of Vodafone/Verizon linkup (VZ, AWE, VOD) By Ciara Linnane
NEW YORK (CBS.MW) -- Analysts are skeptical that Vodafone (VOD) could acquire all of Verizon (VZ) as a report suggested today, citing regulatory issues and the likelihood that Verizon would fight any effort tooth and nail. The Wall Street Journal said earlier that if Vodafone can't acquire AT&T Wireless, for which it is preparing a bid, it may initiate a hostile bid for Verizon, sell the wireline assets and keep the wireless unit. Analyst David Mantell at Loop Capital Markets said the chances of such a deal are "as probable as the Detroit Tigers winning the World Series this year. While there would probably be buyers for the wireline assets, it wold most likely not be at a premium given the competitive forces in that segment of the business," he said. Moreover, "Verizon Wireless is CDMA-bsed, while Vodafone is GSM. Is Vodafone going to strip down the network and replace it with GSM? We doubt it." Soleil Securities analyst Todd Rethemeier agreed. "There are several reasons to believe that this is just a smokescreen and that Vodafone is serious about its bid for AT&T Wireless," he said. Soleil believes investors should not yet discount Vodafone in the AT&T Wireless auction process in the belief that Cingular, which is also bidding, has it all wrapped up. While Cingular is likely to make a pure cash offer, Vodafone will likely offer a stock component which should be very attractive to the company's board and shareholders. "We think that all of the stocks in the group would trade down on this news, which is why we are somewhat cautious on the national operators right now," said Rethemeier. AT&T Wireless shares were last up 3 cents at $11.33, Verizon was up 30 cents at $37.25 and U.S.-listed shares of Vodafone were up 4 cents at $25.58.

[agentHibby]

If Vodafone would lose the auction to AT&T.
Can Vodafone porn money in the Cellco Partnership to push Verizon out of Verizon Wireless??

[agentHibby]

If Verizon when to Vodafone USA and GSM convertion in 2 years or so.
CDMA would go down the tubes.
I do think this is smokescreen[img]i/expressions/face-icon-small-tongue.gif[/img]

[Matt]

Originally posted by: agentHibby If Verizon when to Vodafone USA and GSM convertion in 2 years or so. CDMA would go down the tubes. I do think this is smokescreen[img]i/expressions/face-icon-small-tongue.gif[/img]

oooh I hadn't thought about that. Voda buy VZ communications and then transfers them all to GSM. I wonder if QCOM is getting nervous [img]i/expressions/face-icon-small-happy.gif[/img] [img]i/expressions/face-icon-small-shocked.gif[/img]

[Critic]

Originally posted by: Matt Originally posted by: agentHibby If Verizon when to Vodafone USA and GSM convertion in 2 years or so. CDMA would go down the tubes. I do think this is smokescreen[img]i/expressions/face-icon-small-tongue.gif[/img] oooh I hadn't thought about that. Voda buy VZ communications and then transfers them all to GSM. I wonder if QCOM is getting nervous [img]i/expressions/face-icon-small-happy.gif[/img] [img]i/expressions/face-icon-small-shocked.gif[/img]

Smokescreen or not, you're absolutely right, if I'm Qualcomm, I'm sh*ting bricks right now. But here's something I don't understand - if Verizon and Vodaphone are partners in the CellCo Alliance (aka Verizon Wireless), why can't Voda just buy Verizon's stake? If Verizon can buy out Voda (in the event their bid for ATTWS is successful), why couldn't the opposite occur?

[Fathead]

If Voda wants VZW, and Verizon doesn't want to sell it's shares, the only way to gain full control would be to buy Verizon out. Then by default you own all of VZW.


It's a smokescreen anyway. Wasn't it last week that Voda board members were whining that they didn't feel they had enough $$$ on hand to buy AT&T? They are just trying to muddy the waters so their bid comes off as something special.

[crood]

I wouldn't make any sense to buy Verizon to get control of Verizon Wireless and then switch it to GSM. First, the cost to buy Verizon would be huge and then any conversion to GSM would be another huge outlay, since you'd be scrapping the exisiting network. It would be much easier and cheaper to up the bid for AT&T wireless

[GoodmanR]

Originally posted by: crood I wouldn't make any sense to buy Verizon to get control of Verizon Wireless and then switch it to GSM. First, the cost to buy Verizon would be huge and then any conversion to GSM would be another huge outlay, since you'd be scrapping the exisiting network. It would be much easier and cheaper to up the bid for AT&T wireless

selling off the wireline assets would help with that some though.

[Fathead]

It still would be hard. For starters, they have to come up with the up front cash for Verizon, and then sell it off again. So really after all that, they only end up even on the landline sale. Plus, they have to deal with who would buy Verizon. Is there anyone on the market to buy them? And get FCC approval? I can't see one of the smaller landline carriers affording Verizon, and one of the big boys would have an awful time getting the FCC to approve.



If Voda wins AT&T, and has to sell VZW, they really only pay the bid for AT&T minus the price they get for the VZW stake. To take over a compatible network for only 17 bil would have to be very enticing.

[Laaate]

...plus there will be some flexibility in Vodafone's stake in Verizon b/c (A)under the terms of their agreement, Vodafone has the right to force Verizon to buyout their entire 45% (at a price determined by a 3rd party - so Verizon does not have the ability to name their price since Vodafone is the one antsy to get out), and (B)Verizon does own a percentage of Vodafone Italy that will be able to be swapped as part of Vodafone's exit strategy.

It is true that much as VODA's investment in VZW will help them finance an acquisition of ATT, that same case may be made for the purchase of Verizon Communications b/c they could then sell off the landline business, thereby helping paying for their control of VZW. BUT, and I don't think this has been written about in the American press much, the bottom line is it will initially be much much more costly to execute this ambitious Verizon takeover and that will prevent or delay Vodafone from wrapping up their acquisitions of their other wireless ventures in France and Poland. Contrarily, if Vodafone goes after ATT it would be far less costly and they wouldn't have to sacrifice pulling their French and Polish assets under their umbrella simultaneously.

[NYCDru]

Originally posted by: Fathead If Voda wins AT&T, and has to sell VZW, they really only pay the bid for AT&T minus the price they get for the VZW stake. To take over a compatible network for only 17 bil would have to be very enticing.

Hmm..good point. Does anyone know who that 3rd party would be as far as stating how much Verizon woud have to pay for that remaining 45% stake in VZW? When you look at it that way Voda could outbid just about anyone for ATT cause they are only realy spending there bid (35-45 billion depending) - The amount they would get for there stake in Verizon Wireless ( 15 - 25 billion depending). Plus the fact that as soon as they have won that bid they can start rebranding/reorganizing/reworking ATT to there hearts desire while working out the details of selling VZW back to VZN. I wonder how high cingular is willing to go?

Hmmm..for Cingular it would mean in 12 months they would have a huge influx of income. Between the new customers and selling of the incoming spectrum they would have alot of income to help balance the utter chaos of aquiring ATT.

[Laaate]

Dru, don't know who the third party is or would be, but the estimated range that Verizon would have to pay Vodafone for their 45% is between $20B-$35B US dollars, with $28B being the most-likely amount VZ will be forced to fork over.

So assuming Vodafone can use that money in a bid for ATTWS, let's not forget they also have the extra umpf that no other horse in this race has - exchange rates. Vodafone is a British company, and the pound just hit an all time high versus the dollar yesterday. That means a $30B dollar bid is just 16.5B pounds sterling.

[Delta]

This is all Twilight-Zone-What-If crap. Vodafone ISN'T going to buy Verizon Wireless, and if they DID they sure wouldn't try and switch it all to GSM. WHY?? Why destroy the market leader? And the project of switching would be like saying I am going to rip up all the highways in LA and pave new ones. It would be too hard and there exists no BENEFIT. And this would all take money, which they would lose and lose and lose as their stock is sold of if the public ever got wind of such an insane idea. "Then they could have the worlds largest GSM network" Please. You don't fix something that isn't broke. Why is this even being debated?

[GoodmanR]

Originally posted by: Delta3144 This is all Twilight-Zone-What-If crap. Vodafone ISN'T going to buy Verizon Wireless, and if they DID they sure wouldn't try and switch it all to GSM. WHY?? Why destroy the market leader? And the project of switching would be like saying I am going to rip up all the highways in LA and pave new ones. It would be too hard and there exists no BENEFIT. And this would all take money, which they would lose and lose and lose as their stock is sold of if the public ever got wind of such an insane idea. "Then they could have the worlds largest GSM network" Please. You don't fix something that isn't broke. Why is this even being debated?

Do you honestly think that Verizon's CDMA network can survive forever Delta???

[Delta]

[quote]
Originally posted by: GoodmanR

Do you honestly think that Verizon's CDMA network can survive forever Delta???

You guys are funny. You believe in something so blindly that you can't accept anything other than what you think. CDMA has more coverage than GSM (by far) in the US but the GSM cheerleaders (I hereby declare that there are, in fact, GSM cheerleaders) are convinced that any day the GSM god will come down from heaven and uproot all CDMA towers.

To answer your question, <u>No, I don't think Verizons network will last forever</u>. I'm not stupid enough to think anything lasts forever. And personally, I wouldn't care if something better came out. Heck, I might even switch.But that is not the world we live in right now. But if we are going to talk news, just put a dose of reality in there. Do you believe everything you read?

Ok....now call me a Verizon Cheerleader or whatever....I've heard it all before. sigh

I just think with the AT&T news bit now everyone is gonna say or <u>speculate</u> that this guy is getting bought out, or that guy is getting bought out. That doesn't mean a thing. It wont happen. And they for sure wont try and "switch" Verizons network to GSM. And if it does, I will kiss everyones butt here and admit I was wrong. But it wont happen.

[GoodmanR]

[quote]
Originally posted by: Delta3144

Originally posted by: GoodmanR Do you honestly think that Verizon's CDMA network can survive forever Delta??? You believe in something so blindly that you can't accept anything other than what you think.

Haha, coming from you and Verizon. Thats a good one. I don't believe in GSM blindingly. Right now, in the US CDMA is better. But GSM is a better technology.

[Delta]

If you think so, thats fine with me. I think the point was about Vodaphones supposed buyout of Verizon. And what do you mean "Coming from me and Verizon?" Just an FYI: I am leaving the agent I work for at the end of the month, and will not be selling Verizon anymore. Just so you know my opinions are not that of a salesman.


Oh and so we can put this to rest. You are absolutely right. CDMA sucks. Verizon is overhyped. GSM is great.

[GoodmanR]

Originally posted by: Delta3144 If you think so, thats fine with me. I think the point was about Vodaphones supposed buyout of Verizon. And what do you mean "Coming from me and Verizon?" Just an FYI: I am leaving the agent I work for at the end of the month, and will not be selling Verizon anymore. Just so you know my opinions are not that of a salesman. Oh and so we can put this to rest. You are absolutely right. CDMA sucks. Verizon is overhyped. GSM is great.

Delta, you are one of the bigger Verizon supporters here, thats what I mean by it. Verizon has the best network, I just don't think they always will.

[Delta]

Look, I didn't want to get into a who's network is better contest...I just call it like I see it. If I think something is bogus, I'll be the first to point it out, and to heck with popularity. I think this merger-buyout mania is out of hand, and I think sometimes some people latch onto these stories, however ridiculous, and make too big an issue of it. Then they start preaching to the whole world about how the future is going to be.
I can speak on that, because I am guilty myself. Remember Verizon PTT?? Yep, I got my foot in my mouth that time, and I don't do it any more. I just get annoyed at some of the same banter over and over.

On a good note, I hear it is 100 times worse at HoFo. Luckily things usually get worked out here. I even get along with ILUVSOCAL now!!


BTW....Vodaphone wont buy VZ or switch it to GSM.....just so you know......

One more thing....I don't support everything about Verizon....I think their Share plans are way too expensive, and their HR dept is a sick joke. But noones perfect.

[LowTech]

Originally posted by: Fathead It still would be hard. For starters, they have to come up with the up front cash for Verizon, and then sell it off again. So really after all that, they only end up even on the landline sale. Plus, they have to deal with who would buy Verizon. Is there anyone on the market to buy them?

I'm sure comcast would love to own verizon's landline operation. They purchased at&t broadband like what almost two years ago. Now they're trying to purchase disney. If disney rejects their offer, I'm sure they'll love to own verizon.

[Airb330]

Originally posted by: LowTech Originally posted by: Fathead It still would be hard. For starters, they have to come up with the up front cash for Verizon, and then sell it off again. So really after all that, they only end up even on the landline sale. Plus, they have to deal with who would buy Verizon. Is there anyone on the market to buy them? I'm sure comcast would love to own verizon's landline operation. They purchased at&t broadband like what almost two years ago. Now they're trying to purchase disney. If disney rejects their offer, I'm sure they'll love to own verizon.

Comcast is evil...! I doubt Vodafone will buyout Verizon, too much hassle, and Verizon is making $$$.

[NYCDru]

Originally posted by: Laaate Dru, don't know who the third party is or would be, but the estimated range that Verizon would have to pay Vodafone for their 45% is between $20B-$35B US dollars, with $28B being the most-likely amount VZ will be forced to fork over. So assuming Vodafone can use that money in a bid for ATTWS, let's not forget they also have the extra umpf that no other horse in this race has - exchange rates. Vodafone is a British company, and the pound just hit an all time high versus the dollar yesterday. That means a $30B dollar bid is just 16.5B pounds sterling.

OUCH!!!thank you for bringing up that strong point. That means i won't be suprised at all if tomorow we hear about a $45B dollar deal by Voda. Quite frankly...they can afford it, no problem. And all the money they would get from there sale of VZW stock would probably get pumped right into "fixing: ATTWS

[NYCDru]

Originally posted by: Airb330 Originally posted by: LowTech Originally posted by: Fathead It still would be hard. For starters, they have to come up with the up front cash for Verizon, and then sell it off again. So really after all that, they only end up even on the landline sale. Plus, they have to deal with who would buy Verizon. Is there anyone on the market to buy them? I'm sure comcast would love to own verizon's landline operation. They purchased at&t broadband like what almost two years ago. Now they're trying to purchase disney. If disney rejects their offer, I'm sure they'll love to own verizon. Comcast is evil...! I doubt Vodafone will buyout Verizon, too much hassle, and Verizon is making $$$.

For Voda to buy Verizon would be a waste of money. ATTWS is a much easier target. But speaking of Comcast being the devil, they have Disney by the balls almost literaly right now. As in if Disney wants to keep broadcasting on Cable they have to make Comcast happy with them.

[agentHibby]

It would be hard to sell Verizon wireline since it makes little if any $$
wireless if making lots of $$$ now.
Most of the US is CDMA not much rual is GSM ( I am sure as time goes on it will change)
GSM is probably better for callers
while CDMA better for providers since you can have less towers to build.
I like CDMA better except the calls are not always 100% clear (Sprint is lying about all calls clear).
I will note that when I bought my first tri-mode digital CDMA phone in early 2001 on IS-95a towers it was very clear. When 1XRTT came in it was not as clear. When I had Audiovox 8900 for a 7 days it was worse yet on every call I hear myself in the background.

[bobolito]

GSM is actually better for providers since the equipment and network maintenance is cheaper than CDMA. The number of towers required is independent of the technology used. The number of towers depends on mainly 3 things:

1) The frequency band used. (1900Mhz needs more towers than 800Mhz)
2) The geography of the area. (Mountanous regions need more towers than flat, near-water areas.)
3) The population of the area. (Metro areas/crowded centers need more towers than suburbs.)

[Fathead]

Verizon will probably use their stake in Voda Italy as part of the buyout of the 45%.