BSAD 493

Verizon acquisition of Vodafone's indirect interest

in Verizon Wireless
Prior any comprehensive deliberation on the transaction where Verizon Communications
Inc. acquired of Vodafone Group Plcs 45 percent indirect interest in Verizon Wireless in a
transaction valued at approximately $130 billion, one must present a framework what the
mergers and acquisitions represent in its core.

Having said that, professor Stowell from Northwestern University defines that at the core
of M&A is the buying and selling of corporate assets in order to achieve one or more
strategic objectives. Before entering into an acquisition, companies typically compare the
costs, risks, and benefits of an acquisition with their organic opportunity (often referred to
as a Greenfield analysis).1

On separate note, according to the research published in Harvard Business Review report,
the failure rate for mergers and acquisitions (M&A) sits between 70 percent and 90 percent
(M. Christensen et al., 2017).2
In order to explain this high figure of failures Christensen with his collaborators proposes a
new theory that in it essence claims that vast majority of acquisitions fall short of
expectations because of poor matching of potential candidates, where management fails to
distinguish between deals that might improve current operations and those that could
dramatically transform the companys growth prospects. 3
Therefore, large numbers of M&A transactions either fail in its beginning or pay higher
price.
There are many motives to proceed with M&A, but primary motive for the most of the
transactions is to increase the value of the newly created organisation, and that is called
Synergy4. Other motives are related to tax considerations, purchase of assets below their
replacement costs, diversifications with aim to stabilize income and personal incentives of
managers.
That being said, mergers and acquisitions should never be taken lightly. One must always be
aware of the fact two companies will integrate as one entity, but at least in the beginning
employees from each company have their own corporate culture, ambitions, ways to do the

1 Stowell, D. (2010). An introduction to investment banks, hedge funds, and private equity. 1st ed. Burlington,
MA: Academic Press/Elsevier, p.63.
2 M. Christensen, C., Alton, R., Rising, C. and Waldek, A. (2017). The Big Idea: The New M&A Playbook.
[online] Harvard Business Review. Available at: https://hbr.org/2011/03/the-big-idea-the-new-ma-playbook
[Accessed 11 Jan. 2017].
3 Ibid. M. Christensen, C., Alton, R., Rising, C. and Waldek, A. (2017)
4 Brigham, E. and Houston, J. (2009). Fundamentals of financial management. 1st ed. Mason, OH: South-
Western Cengage Learning, pp.657-658.
business and not mention complexities such as different IT infrastructure and financial
regulation.
To conclude this introductory part, one should say that without having a clear strategy to
achieve planned activities the merger or acquisition could easily fall short, but that was not
the case with Verizon Communications Inc. acquisition of Vodafone Group Plcs 45 percent
indirect interest in Verizon Wireless.

Currently, as per the fact sheet on the www.verizon.com website, Verizon Communications
Inc. (NYSE, Nasdaq: VZ), headquartered in New York, is s one of the largest
communication technology companies in the world. Verizon also provides services over
Americas most advanced fiber-optic network, and delivers integrated business solutions to
customers in more than 150 countries. A Dow 30 company with more than $131.6 billion in
2015 revenues, $8.5 billion in paid dividends for 2015 and Verizon employs a diverse
workforce of 162,000.5

On February 21st, 2014 Verizon Communications Inc. (NYSE, Nasdaq: VZ) announced that
it has completed its acquisition of Vodafone Group Plcs (London, Nasdaq: VOD) 45 percent
indirect interest in Verizon Wireless in a transaction valued at approximately $130 billion.6
As per Lowell McAdam, Verizon chairman and CEO, that acquisition made Verizon wireless
industry leader in network performance, profitability and cash flow.

In order to complete the transaction, as presented on the Verizon website, Verizon issued
1,274,764,121 common shares to shareholders of Vodafone as the stock portion of the
consideration for Vodafones 45 percent indirect interest in Verizon Wireless. Also, Verizon
used proceeds from capital markets transactions occurring in September 2013 and February
2014, as well as $6.6 billion borrowed on Feb. 21, 2014 under its Term Loan Credit
Agreement, dated Oct. 1, 2013, for the payment of the cash portion of the consideration to
Vodafone and related fees and expenses.
It must be noted that Verzion published that leading financial advisors were Guggenheim
Securities LLC, J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC and Paul J.
Taubman. Apart from them, Barclays and BofA Merrill Lynch served as additional financial

5Verizon.com. (2016). Verizon Fact Sheet. [online] Available at:

http://www.verizon.com/about/sites/default/files/Verizon_Fact_Sheet.pdf [Accessed 12 Jan. 2017].
6 Verizon.com. (2017). Verizon Completes Acquisition of Vodafone's 45 Percent Indirect Interest in Verizon
Wireless. [online] Available at: http://www.verizon.com/about/news/verizon-completes-acquisition-vodafones-
45-percent-indirect-interest-verizon-wireless [Accessed 12 Jan. 2017].
advisers to Verizon and Wachtell, Lipton, Rosen & Katz and Macfarlanes LLP served as
transaction counsel to Verizon, while Debevoise & Plimpton LLP advised Verizon on its
debt financings.

One should not minimize effect on Vodafone as the buyout of 45% interest allowed
Vodafone much needed cash to pay off debts. As Bloomberg reported, after the disposal of
its 45 percent stake in Verizon Wireless, the biggest U.S. mobile-phone company, Vodafone
will pay out $82.5 billion to shareholders and consolidate its shares, cutting its market value
to about 60 billion pounds ($100 billion) starting next week. Its value was 116 billion
pounds, based on last months 12-year high of 240 pence.7

In another article (Moritz and Thomson, 2014) published on Bloomberg, both authors claims
that the decision to complete one of the largest M&A of all time Verizon showed its
confidence in the U.S. wireless market.8
That this transaction was good strategic decision was confirmed by similar acquisitions that
took place in short time after Verzion deal with Vodafone.
As Bloomberg reports, Sprint Corp., the third-largest U.S. mobile-phone company, was
acquired in July by SoftBank Corp., and it gave Sprint a cash infusion to upgrade its
technology and become more competitive on the market.
In addition, Deutsche Telekom AGs T-Mobile US Inc., the fourth-largest U.S. carrier,
merged with MetroPCS Communications Inc. in May of the same year.

All these deals took place as the senior management in the mentioned firms believed that
demand for wireless devices and services has significant potential to grow in the coming
future.

7 Bloomberg.com. (2014). Verizon Sale Cuts Vodafone Value by Half to $100 Billion. [online] Available at:
https://www.bloomberg.com/news/articles/2014-02-21/verizon-stake-sale-cuts-vodafone-s-value-by-half-to-
100-billion [Accessed 12 Jan. 2017].
8 Moritz, S. and Thomson, A. (2014). Verizon Agrees to $130 Billion Vodafone Deal. [online]
Bloomberg.com. Available at: https://www.bloomberg.com/news/articles/2013-09-02/verizon-agrees-to-130-
billion-vodafone-deal [Accessed 12 Jan. 2017].