NEW YORK – On Saturday, reports emerged that Verizon (NYSE:VZ) is considered offering bonds with maturities of up to 100 years as it seeks to raise $ 130 billion to finance its acquisition of Vodafone’s (NASDAQ:VOD) 45 percent stake in Verizon Wireless. According to sources familiar with the deal, Verizon will seek to raise upwards of $ 50 billion through bonds with longer than usual maturity rates. The bond offering will be the largest since Apple (NASDAQ:AAPLE) raised $ 17 billion in April of this year.
One potential issue with the offering is that Verizon currently has a large amount of outstanding debt and that offering 10-year corporate bonds would put increased pressure on the company and its bondholders – potentially blocking moves to raise additional funds.
While underwriters for the debt offering, JP Morgan (NYSE:JPM), Barclays (FTSE:BARC), and Morgan Stanley (NYSE:MS) declined to comment, completing the deal could prove extremely difficult as corporate bond yields have fallen during the past three months. Corporate bond investors are facing their first negative year since 2008.
Furthermore, some hedge fund managers have expressed skepticism that the bond offering will be attractive enough to capture investor attention as the size of the offering might weaken any opportunity for success in the after-market. While the offering will be made in multiple currencies, doing so might complicate efforts as exchange rate variances will be difficult to predict over the long-term.
One of the potential issues Verizon is facing is the lack of enthusiasm over the deal to buyout Vodafone’s share in their partnership of Verizon Wireless. On Friday, Natalie Gordon, a Verizon shareholder filed a lawsuit to stop the buyout claiming the agreement is ‘insufficient and inadequate’ to shareholders of Verizon. In filing the lawsuit, Gordon is seeking group status on behalf of all affected shareholders. In the complaint, Gordon said ‘Verizon shareholders are being shortchanged, and their investment in Verizon will be diminished and diluted as a result of the stock purchase agreement.’ The company claimed the suit was without merit
Gordon’s lawsuit might be the first of many attempts to prevent the buyout, which on the surface appears to have little benefit for Verizon’s customers or shareholders. In addition, the mobile telephone industry is extremely capital intensive and the $ 130 billion buyout could impair Verizon’s ability to invest in network upgrades such as 4G and beyond and the Government might not approve the buyout if it feels it is not in the best interests of consumers. If the company is considering 100-year bonds to finance the deal, then it might be a sign that the agreement is in trouble and investors would be better served by holding out.
Shares in Verizon are currently trading at $ 45.96 in after-hours after closing the day down nearly 1 percent.