Vodafone mulls dumping Verizon to fund bid for US rival

Vodafone [NYSE:VOD] is contemplating selling its 44.3% stake in US mobile operator Verizon Wireless in order to raise funding for the possible takeover of a US rival. The UK-based company is believed to be interested in acquiring either VoiceStream Wireless, Deutsche Telekom’s US mobile subsidiary, or AT&T Wireless, whose largest shareholder is Japan’s NTT DoCoMo. Prior to any bid, however, Vodafone will exercise its option to sell its entire stake in Verizon Wireless to its majority shareholder Verizon Communications [NYSE:VZ] for as much as GBP12.5 billion (USD20 billion). Under the terms of an existing shareholder agreement between Vodafone and Verizon, the latter could be forced to buy half the stake in July this year with the remainder set to follow a few months later. Such an option would help Vodafone kill two birds with one stone, providing funding for a deal and side-stepping any future problems with US anti-trust authorities if it later went after another US operator.

Analysts in the UK have speculated that Vodafone’s incoming chief executive Arun Sarin, the former head of Vodafone’s US operations who takes over from Sir Christopher Gent this spring, will look to ramp up the company’s interests in North America. However, its relations with Verizon Wireless have cooled following the latter’s decision to opt for the rival CDMA protocol rather than the GSM standard employed globally by Vodafone. As a result Vodafone could instead look to buy into VoiceStream or AT&T Wireless, the two main users of the technology in the US. Deutsche Telekom is keen to reduce its GBP41 billion of debt with its CEO, Helmut Sihler, on record as saying he is keeping his options open over the company which was bought for GBP50 billion in 1999. Meanwhile, NTT is looking to release funds to shore up its domestic operations, which could feasibly put AT&T Wireless - valued at USD17 billion but with debts of USD14 billion - in Vodafone’s line of sight.