Verizon Communications Inc. (VZ) Has A $10 Billion Breakup Fee With Vodafone

Posted Sep 4, 2013

Verizon Communications Inc. (NYSE:VZ) will pay Vodafone $10 billion if the Vodafone deal falls through, according to filings found by the WSJ.  This is the largest break-up fee on record for a deal.  Verizon will need to raise around $50 billion to help fund this deal.

The largest ever fee actually paid was when AT&T paid T-Mobile $4 billion.  The largest break-up fee agreed upon was Pfizer’s agreement to pay Wyeth $4.5 billion, but that deal was closed.  AT&T’s fee was 10.2% of the total purchase price and Verizon’s break-up fee is 7.6% of the price.  The reason why the AT&T-T-Mobile fell through is because regulators blocked the deal from happening.

Verizon Communications Inc. (NYSE:VZ) Lowell McAdam said that the changing tides in the debt market helped persuade him to pursue the deal.  J.P. Morgan Chairman and CEO Jamie Dimon told the Verizon board that the financing package is possible.

Verizon said that the would pay $10 billion if financing is the reason that the deal were to collapse.  Otherwise, the fees would be in the 3-4% range.  It would be below that if Vodafone were to find a better deal.  The break-up fee would be around $4.64 billion (3.6% of the deal price) if the deal collapses because Verizon’s board walks away.  The break-up fee would be $1.55 billion (1.2% of the deal) if shareholders fail to support the deal.

[Source: The Wall Street Journal]