Verizon Communications Inc. may be close to striking one of the largest deals in history to take full control of the country's leading wireless carrier.
On Thursday, Vodafone Group confirmed that it was in advanced discussions with Verizon to sell its 45% stake in Verizon Wireless. Although such talks have been held repeatedly in recent years, it appears that the two sides may be days away from finalizing a transaction that could cost as much as $130 billion.
Such a sale is not likely to affect consumers in the short term. But analysts said Verizon's desire to assume total control of its wireless operations indicates just how crucial that business has become, even as competition becomes more heated.
"It's the jewel in Verizon's crown," Kevin Roe of Roe Equity Research said. "It's their most valuable asset. It's a no-brainer that they'd want to own 100% of their best business."
The latest round of talks was first reported by the Wall Street Journal and later acknowledged officially by British company Vodafone. Verizon Wireless is a joint venture established by Verizon and Vodafone in 2000 after a flurry of mergers at the time began to reshape the mobile carrier landscape.
As mobile business accelerated past traditional land-line businesses thanks to the smartphone revolution in recent years, Verizon has sought several times to acquire the 45% of Verizon Wireless that it doesn't own. Under the current joint venture, Verizon essentially controls the partnership and has wide latitude to make strategic decisions, analysts said.
Wall Street sees the potential transaction as primarily a financial one, rather than strategic. Owning all of Verizon Wireless would allow Verizon to consolidate as a single company.
Earlier this year, the two sides were reported to be far apart in terms of valuation. But there appear to be several incentives to clinching a deal sooner rather than later.
Verizon probably would have to assume billions of dollars in debt, and interest rates have been rising. Analysts say that every day Verizon waits to borrow the money makes the deal more expensive.
Also, the business itself continues to grow, making it more valuable as it adds subscribers. Verizon Wireless is the largest U.S. carrier in terms of overall market share. And in smartphones, Verizon holds a 36.9% to 26.5% edge over rival AT&T Inc., according to Kantar Worldpanel ComTech.
"Verizon took a hard position, which ended up being wrong, at the bargaining table," independent telecom analyst Jeff Kagan said. "Every year it's just been worth more and more. They've finally realized that if they want to do this deal, now is the time."
Although Verizon and AT&T have come to dominate the U.S. market, they may be facing renewed competition from smaller rivals Sprint and T-Mobile USA.
T-Mobile finally began selling Apple's iPhone this year, acquired wireless carrier MetroPCS and has been investing heavily in building out its highest-speed network. And this summer, Sprint finalized a deal under which SoftBank of Japan acquired a 78% stake in the carrier for $20 billion, even as Sprint was assuming control of another wireless carrier, Clearwire.
Roe of Roe Equity Research said a Verizon-Vodafone deal could unleash another round of deal making and reshuffling given the big cash infusion to Vodafone. He noted there had been talk of AT&T looking for deals with European carriers and companies trying to expand outside their domestic territories.
"This transaction will have a domino effect," Roe said. "It opens up a whole new myriad of [merger and acquisition] possibilities. It's going to be fun."
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