Verizon’s Jumbo Bond Offering | BETA BLOGS
India China US Japan Europe Australia Recent Posts Facebook WhatsApp Deal Vote on Account 2014 HUL – d Unilever Apollo d Cooper Deal Verizon’s d Jumbo Bond Offering Archives March 2014 February 2014 October 2013 September 2013 July 2013 June 2013 Blog Stats 11,671 hits Follow Blog via E-mail
In the third largest M&A deal of all time, Verizon Communications Inc. acquired Vodafone Group Plc s 45% stake in Verizon Wireless for $130 billion earlier this year. Verizon Wireless was a 55:45 joint venture formed in between Verizon Communications and Vodafone and it is the largest and most profitable d cell phone service provider in the US. The deal gives Verizon unrestricted control over the huge operating income ($21.8 billion last FY) generated by Verizon Wireless and provided Vodafone an exit from a highly d valuable business, whose operations and dividends it couldn t control. Both parties had pursued a similar deal several times in the past few years, however each time the talks soured on the valuation d issues and on who would take the final control of the unit.
Under the agreed deal, Vodafone will get $58.9 billion in cash, $60.2 billion in Verizon stock, and an additional $11 billion from smaller d transactions d next year. To finance the huge cash component of the deal, Verizon came out with the largest corporate bond offering of all time. It issued a whopping $49 billion of bonds shattering the previous record of Apple ($17 billion offering). Verizon d s 10-year bonds carry a 5.15% coupon and the 30-year bonds have a 6.55% coupon, spreads of 225 basis points and 265 basis points d versus d comparable Treasuries at launch. This is much higher than the 75 basis points spread at which Apple issued its $17 billion 10-year-bonds. The difference is largely attributable to two factors. One, Apple issued bonds were AA rated as it had large cash on its balance sheet but didn t want to access its overseas cash pile to avoid paying US taxes. Verizon s bonds on the other hand are BBB+ rated, on the lower side of ratings for investment d grade bonds. Two, Apple got the timing of the bond issue perfect as it issued the bonds just before Ben Bernanke announced that the Federal reserve would slow down asset purchases (tapering).
Verizon d was eager to push the deal as postponing it could have led to interest costs because of the expected bond tapering by the Federal Reserve. These expectations were party the reason for which Verizon had to pay a much higher spread than what it would have otherwise paid. This coupled with the sheer size of the issue forced Verizon to pay the higher spread. Investors, especially the insurance companies and pension funds, d have been starving for high-yield bonds because of the Federal Reserve’s ultra-low interest rate program. Hence, the high spread resulted in the bond-issue being oversubscribed as Verizon received bids for $100 billion bonds against the $49 billion bonds on offer.
Verizon expects the deal to boost the earnings per share by about 10% upon deal closing. It also expects significant growth opportunities in the future with the Wireless division. However, d the deal would push up the company s interest costs significantly. The deal has roughly doubled Verizon s debt burden to $116 billion. Both S&P and Moody s down graded Verizon s credit rating as soon as the deal was announced. Verizon expects the Wireless division to generate sizable free cash flows that it intends to use to fund network investments to take on the growing competition.
Vodafone, on the other hand would be left with sizable amount of cash to fund its expansion plans. It plans to use proceeds to start a 6 billion-pound ($9.3 billion) network-investment program, d called Project Spring, over the next three years. It will also return $84 billion to shareholders, d including $23.9 billion in cash and the remainder d in Verizon s stock. The deal has been structured d in a way that would entail only a tax liability of $5 billion for Vodafone. It will bring down the company s leverage to one times forward operating profit (EBITDA).
On the face of it, the deal looks like a win-win for both parties. Vodafone managed to get a fair-price after protracted negotiations and Verizon managed to get full-control over an attractive fast-growing asset. The markets meanwhile have given a thumbs-up to the bond issue as after the initial over subscription, the bonds trade at a premium to face value.
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India China US Japan Europe Australia Recent Posts Facebook WhatsApp Deal Vote on Account 2014 HUL – d Unilever Apollo d Cooper Deal Verizon’s d Jumbo Bond Offering Archives March 2014 February 2014 October 2013 September 2013 July 2013 June 2013 Blog Stats 11,671 hits Follow Blog via E-mail
In the third largest M&A deal of all time, Verizon Communications Inc. acquired Vodafone Group Plc s 45% stake in Verizon Wireless for $130 billion earlier this year. Verizon Wireless was a 55:45 joint venture formed in between Verizon Communications and Vodafone and it is the largest and most profitable d cell phone service provider in the US. The deal gives Verizon unrestricted control over the huge operating income ($21.8 billion last FY) generated by Verizon Wireless and provided Vodafone an exit from a highly d valuable business, whose operations and dividends it couldn t control. Both parties had pursued a similar deal several times in the past few years, however each time the talks soured on the valuation d issues and on who would take the final control of the unit.
Under the agreed deal, Vodafone will get $58.9 billion in cash, $60.2 billion in Verizon stock, and an additional $11 billion from smaller d transactions d next year. To finance the huge cash component of the deal, Verizon came out with the largest corporate bond offering of all time. It issued a whopping $49 billion of bonds shattering the previous record of Apple ($17 billion offering). Verizon d s 10-year bonds carry a 5.15% coupon and the 30-year bonds have a 6.55% coupon, spreads of 225 basis points and 265 basis points d versus d comparable Treasuries at launch. This is much higher than the 75 basis points spread at which Apple issued its $17 billion 10-year-bonds. The difference is largely attributable to two factors. One, Apple issued bonds were AA rated as it had large cash on its balance sheet but didn t want to access its overseas cash pile to avoid paying US taxes. Verizon s bonds on the other hand are BBB+ rated, on the lower side of ratings for investment d grade bonds. Two, Apple got the timing of the bond issue perfect as it issued the bonds just before Ben Bernanke announced that the Federal reserve would slow down asset purchases (tapering).
Verizon d was eager to push the deal as postponing it could have led to interest costs because of the expected bond tapering by the Federal Reserve. These expectations were party the reason for which Verizon had to pay a much higher spread than what it would have otherwise paid. This coupled with the sheer size of the issue forced Verizon to pay the higher spread. Investors, especially the insurance companies and pension funds, d have been starving for high-yield bonds because of the Federal Reserve’s ultra-low interest rate program. Hence, the high spread resulted in the bond-issue being oversubscribed as Verizon received bids for $100 billion bonds against the $49 billion bonds on offer.
Verizon expects the deal to boost the earnings per share by about 10% upon deal closing. It also expects significant growth opportunities in the future with the Wireless division. However, d the deal would push up the company s interest costs significantly. The deal has roughly doubled Verizon s debt burden to $116 billion. Both S&P and Moody s down graded Verizon s credit rating as soon as the deal was announced. Verizon expects the Wireless division to generate sizable free cash flows that it intends to use to fund network investments to take on the growing competition.
Vodafone, on the other hand would be left with sizable amount of cash to fund its expansion plans. It plans to use proceeds to start a 6 billion-pound ($9.3 billion) network-investment program, d called Project Spring, over the next three years. It will also return $84 billion to shareholders, d including $23.9 billion in cash and the remainder d in Verizon s stock. The deal has been structured d in a way that would entail only a tax liability of $5 billion for Vodafone. It will bring down the company s leverage to one times forward operating profit (EBITDA).
On the face of it, the deal looks like a win-win for both parties. Vodafone managed to get a fair-price after protracted negotiations and Verizon managed to get full-control over an attractive fast-growing asset. The markets meanwhile have given a thumbs-up to the bond issue as after the initial over subscription, the bonds trade at a premium to face value.
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