Verizon May Have Finagled a Less Taxing Way to Buy Out Vodafone
Apr 19, 2013 8:40 AM PT
Verizon Communications, which posted a higher-than-expected quarterly profit on the performance of its wireless business, has increased the pressure on Vodafone Group to sell its 45 percent stake in Verizon Wireless.
The sale would give Verizon Communications full control of the largest mobile carrier in the United States.
New Path Forward?
"With respect to Vodafone, obviously, we made a public announcement on April 2, and I would reference all of you back to that announcement," said Francis J. Shammo, CFO of Verizon Communications, during Thursday's earnings call.
"Of course, as we've always said before, we are very interested in acquiring the 45 percent stake in Verizon Wireless that we don't already own," he added.
"I will say, though, that there has been a lot of speculation about the tax consequences of a purchase of this 45 percent, and we are extremely confident that such a transaction could be accomplished in a manner that is very tax-efficient and would not result in a tax on the gain in that stake," Shammo said.
"This reflects the signaling that their tax lawyers and accountants have come up with some options of what is otherwise a straightforward sale," said JeffreyS. Silva, senior policy director for telecommunications, media and technology at Medley Global Advisors. "There could be a new path forward to this sale."
Verizon Communications declined to provide further details.
Verizon Takes Verizon
A Verizon Communications buyout of Vodafone's stake in Verizon Wireless could certainly be a profitable move.
"Without Vodafone, Verizon Communications would have full control over the company," said Roger Entner, principal analyst at Recon Analytics.
"Verizon Wireless is very profitable and will probably remain to be very profitable," he noted.
"So buying out your minority partner makes sense from a financial position, not only from a corporate governance position," Entner told the E-Commerce Times. "A 100 percent Verizon Wireless would improve the profitability for Verizon Communications substantially."
V In, V Out
Aside from the suggestion that Verizon's lawyers may have crafted a highly tax-efficient deal, why is the time ripe for the joint venture to end now?
"We have heard this for a long time," said telecommunications analyst Jeff Kagan. "Verizon would be interested in acquiring 100 percent of Verizon Wireless, under the right conditions. There was never any urgency in the past. The urgency seems to be growing."
For the deal to happen, it "would have to make financial sense -- and then Verizon would jump on the deal," said Kagan. "Everyone knows it. Even Vodafone."
What are the potential advantages, though, for Vodafone?
"Vodafone has never wanted give up the golden goose," noted Kagan. However, "if the right terms can be agreed upon, this deal will happen."
Still, if those terms don't gel, the moment could be lost.
"The major obstacle is that Verizon Wireless is as good an investment as they come," added Entner. "Nobody in their right mind would sell it unless they are in a bind. It's like one of the crown jewels."