Analysis: Tax strategy may be key to Verizon Wireless deal

Mon Apr 29, 2013 1:49pm EDT
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By Kevin Drawbaugh, Nanette Byrnes and Soyoung Kim

(Reuters) - Verizon Communications Inc's chances of buying the 45 percent stake in Verizon Wireless owned by Britain's Vodafone Group Plc will hinge, at least in part, on the quality of tax advice it is getting.

Verizon, the No. 2 U.S. telecommunications company, may have found a way to structure a purchase of the stake so that Vodafone can avoid a multibillion-dollar U.S. capital gains tax bill, sources familiar with Verizon's plans said. The possibility of a huge tax bill has previously been regarded by analysts as a big hurdle to any such deal.

Reuters reported last Wednesday that Verizon was preparing a bid worth about $100 billion to take full control of Verizon Wireless - it already owns the other 55 percent - by buying the stake, according to people familiar with the matter. There are no guarantees that Vodafone will want to sell its stake or that Verizon will pursue the plan.

Vodafone declined to comment on the possibility of a Verizon bid for its stake or on the tax question.

One person familiar with the situation said Vodafone cannot consider the size of any tax payout in a possible transaction until the company has received an offer, which it has not.

A Verizon spokesman declined to comment.

Verizon hopes that if it structures a transaction to eliminate much of the tax bill, it can encourage Vodafone to come to the table for talks. Some analysts and investors say Verizon may have to pay as much as $130 billion to clinch the deal.

The tax bill on a $100 billion deal, based on a simple acquisition of the stake, would be about $38 billion, according to UBS Investment Research. It could be much higher if the deal's price tag rises above that figure, UBS noted.   Continued...

A sign of Verizon Wireless is seen at its store in Westminster, Colorado April 26, 2009. REUTERS/Rick Wilking