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Monday, September 02, 2013, 11:22 am PT (02:22 pm ET)

Verizon, Vodafone part ways in $130 billion US wireless unit deal

In the second-largest acquisition in history, Verizon Wireless will pay $130 billion to Vodafone to buy out that company's stake in their joint venture, leaving America's largest carrier in full control of its own operations.



The massive agreement will see Verizon paying Vodafone $60.2 billion in stock, 58.9 billion in cash, and the remaining $10 billion in other considerations. It is second in size only to the $172 billion acquisition of Mannesmann AG in 1999. Total fees for the firms advising on the deal and aiding in the logistics could go as high as $500 million, according to The Wall Street Journal.

Observers note that, despite the size of the deal, U.S. Verizon customers will likely see very few effects, if any. Instead, the deal's main impact will be on the bottom lines of both Verizon and Vodafone.

Verizon will get to keep more of its revenue, something it has not been able to do due to the sizable portion that went to Vodafone under the shared ownership agreement. In 2012, Verizon pulled in $10.6 billion in net income but booked only $875 million of that as Verizon profit, as $9.7 billion went to joint venture partners.

Vodafone will come out of the deal with a massive war chest, something that will help the firm cushion the loss of Verizon's hefty profit and also to turn an eye toward other markets. Reportedly, Vodafone is looking to acquire Kabel Deutschland, Germany's largest cable operator, for $10 billion. Over the next few years, though, Vodafone will also be investing roughly $9.3 billion in its own networks and services. It will also return $84 billion to shareholders, including all of the Verizon stock it gets in the deal, as well as $23.9 billion in cash.

Verizon will fund the deal in part by taking on a considerable amount of debt. The carrier could make a bond offering to cover between $20 and $30 billion of the deal. Such an offering would become the largest in history, outstripping even Apple's own historic offering made earlier this year in order to facilitate a $100 billion capital rewards program.

Verizon would look to repay that debt load within just a few years, though, as having such a figure weighing on the bottom line could prove dangerous should the economy take a turn for the worse.

The deal will likely mark an even sharper focus on Verizon's wireless operations going forward, as that segment of the company generated two-thirds of Verizon's $116 billion in revenue for the last year. Apple's iPhone regularly accounts for a significant portion of Verizon's revenue, as the bestselling smartphone made up 51 percent of the carrier's lucrative smartphone activations in the most recent quarter.

The tax price tag associated with the deal will reportedly reach $5 billion. The transaction is not expected to see much in the way of antitrust resistance, given that Verizon already controls the joint venture. It is still subject to approval from both companies' shareholders, the European Union's merger clearance bodies, and the U.S. Federal Communications Commission. According to Verizon, the deal should be completed in the first quarter.