Verizon May Have Finagled a Less Taxing Way to Buy Out Vodafone

Verizon Communications, whichposted a higher-than-expected quarterly profit on the performance ofits wireless business, has increased the pressure on Vodafone Group tosell its 45 percent stake in Verizon Wireless.

The sale would give Verizon Communications fullcontrol of the largest mobile carrier in the United States.

New Path Forward?

“With respect to Vodafone, obviously, we made a public announcement onApril 2, and I would reference all of you back to that announcement,”said Francis J. Shammo, CFO of Verizon Communications, duringThursday’s earnings call.

“Of course, as we’ve always said before, weare very interested in acquiring the 45 percent stake in VerizonWireless that we don’t already own,” he added.

“I will say, though, that there has been a lot of speculation aboutthe tax consequences of a purchase of this 45 percent, and we areextremely confident that such a transaction could be accomplished in amanner that is very tax-efficient and would not result in a tax on thegain in that stake,” Shammo said.

“This reflects the signaling that their tax lawyers and accountantshave come up with some options of what is otherwise a straightforwardsale,” said JeffreyS. Silva, senior policy director fortelecommunications, 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 inVerizon Wireless could certainly be a profitable move.

“Without Vodafone, Verizon Communications would have full control overthe company,” said Roger Entner, principal analyst at Recon Analytics.

“Verizon Wireless is very profitable and will probably remain to bevery profitable,” he noted.

“So buying out your minority partner makes sense from a financialposition, not only from a corporate governance position,” Entner toldthe E-Commerce Times. “A 100 percent Verizon Wireless would improvethe 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 analystJeff Kagan. “Verizon would be interested in acquiring 100 percent ofVerizon Wireless, under the right conditions. There was never anyurgency in the past. The urgency seems to be growing.”

For the deal to happen, it “would have to make financial sense — and thenVerizon would jump on the deal,” said Kagan. “Everyone knows it. EvenVodafone.”

What are the potential advantages, though, for Vodafone?

“Vodafone has never wanted give up the golden goose,” notedKagan. 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 aninvestment as they come,” added Entner. “Nobody in their right mindwould sell it unless they are in a bind. It’s like one of the crown jewels.”