Verizon Communications Inc. and Vodafone plc are in talks about the future of their Verizon Wireless joint venture — a $179-billion+ merger between the two parents, a takeover by Vodafone of the JV or a spinoff of it to a third party are among the options on the table. And at least one analyst is saying that a full-fledged Vodafone takeover of Verizon Communications itself would likely pass muster.
The U.K.’s Sunday Telegraph and the Sunday Times both reported the talks over the weekend, noting that Vodafone is asking for dividends from the partnership; Verizon Wireless is 55 percent owned by Verizon, and 45 percent by Vodafone. Verizon Wireless is almost finished paying down outstanding debt, which would mean it would need to start paying Vodafone its share of the bounty — a requirement it has been able to defer until now, and one Verizon is looking to avoid.
A merger that would make the latter the majority shareholder in the whole of Verizon Communications — an outcome Vodafone sees as 60/40-percent in its favor, it told the Telegraph, would likely win government clearance here in the United States, but the scrutiny is not to be underestimated, said analysts at Stifel Nicolaus.
While they are “not aware of any increases in market concentration from such a merger that would raise serious antitrust issues at the U.S. Department of Justice,” a deal that is structured to give Vodafone control over all of Verizon's assets, including landline, would raise national-security questions. Giving control over a critical communications infrastructure of such size to a foreign entity would set off red flags, they noted. Thus, expect a review by the Committee on Foreign Investment in the United States (CFIUS), a U.S. government inter-agency group that looks at national-security and law-enforcement issues involved in foreign takeovers of U.S. assets, as well as by the Departments of Homeland Security, Defense, State, Justice, Treasury and other executive branch agencies.
Nonetheless, the transaction would likely be ultimately approved, marking the first time such an infrastructure giant passed control out of the United States. That said, for Verizon Wireless’ part, it would not be the first national wireless operator to submit to foreign majority ownership, nor, perhaps, the last: No. 4 T-Mobile USA is of course owned by Deutsche Telekom, which is also long rumored to be eyeing No. 3 Sprint-Nextel Corp. as an acquisition target.
Investors don’t seem concerned: Vodafone and Verizon stocks both ticked upward on Monday on the strength of the news.
