Verizon, Vodafone Deal Is Unlikely To Face Regulatory Hurdles, Analysts Say

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By Bryce Baschuk  

Federal regulators are unlikely to prevent Verizon Communications Inc. from buying back its domestic wireless business from Vodafone Group Plc., analysts said Sept. 3.

Verizon announced Sept. 2 that it would pay Vodafone $130 billion for its 45 percent stake of Verizon Wireless, a price tag that at least one analyst called “expensive.”

Section 310(d) of the Communications Act requires that the Federal Communications Commission give its prior consent before any license can be transferred, assigned, or disposed of. The Hart-Scott-Rodino Act requires transactions that exceed $283.6 million to undergo an initial 30-day review period by the Federal Trade Commission and the Department of Justice. The Department of Justice typically handles oversight of telecom mergers. A spokesman for DOJ had no comment when questioned by BNA Sept. 3. The FCC and the FTC did not respond to BNA's request for comment Sept. 3.

The deal “shouldn't run into any problems in Washington,” said Guggenheim Partners analyst Paul Gallant. “It doesn't affect competition in the wireless sector. And reducing foreign ownership of U.S. telecom networks is usually viewed as a plus by regulators.”

The Verizon-Vodafone transaction “should not be much of a regulatory story,” said Jeff Silva, analyst at Medley Global Advisors. “This is one of those cases where a deal's price tag--$130 billion in this case and colossal by any measure in the telecom sector--does not equate to a major government review,” he said. “Having said that, I suspect Verizon will continue to receive rigorous scrutiny on spectrum and other policy matters for the remainder of Obama's second term,” said Silva.

Verizon Won't Expand to Canada

Verizon Chief Executive Officer Lowell McAdam confirmed that any plans for Verizon to expand into Canadian marketplace are “off the table at this point” during the Verizon's management call on Sept. 2. McAdam added: “That doesn't mean we would write off any international opportunities moving forward …We'll look for selective things that make sense.”

The Committee on Foreign Investment in the United States (CFIUS), which reviews the potential national security effects of transactions in which a foreign company obtains control of a U.S. company, lacks jurisdiction over the merger since Verizon is buying ownership of its own domestic wireless operations from the U.K.-based company. A CFIUS spokesman had no comment.

Third Parties Unlikely to Derail Deal

“Because Verizon already controls Verizon Wireless, I don't think the buyout will face any regulatory or antitrust hurdles,” said Free State Foundation President Randolph May. “I don't even suspect there will be opposition from many of those who usually oppose almost all proposed telecom transactions, although it is possible that some group or another that just opposes 'big corporations' as a general proposition might want to raise an objection,” May said.

“There's always a possibility where a major transaction is involved that third parties might surface in hopes of advancing their agendas even if the chances of derailing the deal are slim to nil,” said Silva. “There's nothing really wrong with the strategy, but wouldn't change the outcome in this case,” he said. Public Knowledge Senior Vice President Harold Feld said it's “really unlikely” that other parties would seek to block the deal “but anyone with an ax to grind against Verizon could arguably try to file in this proceeding.”

The deal is “another sign of Verizon's intent to abdicate wireline broadband dominance to cable, while concentrating its efforts on wireless in a lucrative duopoly with AT&T,” Free Press Policy Director Matt Wood said. “We're likely to hear empty claims about how this buyout will be good for competition and consumers; but Verizon wouldn't be plunking down $130 billion if it weren't terribly confident it can make that back from wireless customers without enough viable alternatives,” said Wood.

Costly Terms for Verizon

The deal is “expensive” for Verizon, according to Christopher King, a telecom analyst for Stifel Nicolaus. “We believe the amount paid in a transaction with no discernible financial or operational synergies, to be high for a U.S. wireless carrier,” King wrote in a report Sept. 3.


Verizon agreed to pay Vodafone:

• $58.9 billion in cash $60.2 billion in common stock,

• $5 billion of notes with Vodafone,

• $3.5 billion sale of Verizon's minority stake in Omnitel, and

• $2.5 billion in other obligations.

Verizon will finance the deal with $61 billion in debt in addition to $60.2 billion in Verizon stock, the company said. The transaction is expected to close in the first quarter of 2014, Verizon said.

Vodafone CEO Vittorio Colao said the transaction will “yield a significant return of value to our shareholders” and will help the company invest in future wireline and wireless broadband investments, in a statement following the announcement. Vodafone said $84 billion will be returned to its shareholders following the completion of the deal.


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