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For Verizon advisers, patience pays off with huge payday

A woman talks on her mobile phone as she walks past a Vodafone store in London September 2, 2013. REUTERS/Stefan Wermuth
A woman talks on her mobile phone as she walks past a Vodafone store in London September 2, 2013. REUTERS/Stefan Wermuth

By Soyoung Kim

NEW YORK (Reuters) - It has been a 10-year-long wait for bankers advising Verizon Communications Inc on its $130 billion deal to take complete control of Verizon Wireless, but their patience will yield both handsome fees and bragging rights.

Bankers, including Paul Taubman, Alan Schwartz, Andrew Decker and James Ferency, were among the advisers that Verizon used back in 2004, when it first came close to buying out Vodafone Group Plc's 45 percent stake in the No. 1 U.S. mobile carrier, people familiar with the matter said.

Since that time much has changed. Taubman, then at Morgan Stanley , left the bank earlier this year and is currently working independently. Schwartz was then the CEO of Bear Stearns and Decker and Ferency were bankers at the firm. They have since moved to Guggenheim Partners after Bear became a victim of the financial crisis in 2008 and had to be rescued by JPMorgan Chase & Co .

But Verizon turned to the same group of bankers - as well as their current and old firms - to help make its latest run at the deal, which was announced on Monday after last-minute negotiations over a U.S. holiday weekend.

The deal, the third-largest corporate acquisition of all time, is estimated to generate M&A advisory and financing fees of around $500 million and catapult Guggenheim, an independent financial services firm, to the 10th position from 42nd in the global rankings of M&A advisers.

It will also seal the lead of Goldman Sachs Group Inc , Bank of America Corp and JPMorgan as the top three M&A advisors globally, according to Thomson Reuters data.

JPMorgan, Morgan Stanley, Barclays Plc and Bank of America also advised Verizon and arranged the financing for the deal. Goldman Sachs Group Inc and UBS AG are advising Vodafone.

The banks are expected to split total advisory fees of $200 million to $250 million, with about $110 million to $125 million paid by Verizon Communications, and $100 million to $118 million paid by Vodafone, according to financial services firm Freeman & Co estimates.

Banks would also earn fees for arranging the financing. Fees for loan syndication could be around 0.2 percent to 0.4 percent of the amount raised. For money raised through bonds, fees would be 0.3 percent to 0.8 percent, according to Freeman.

Taubman, the former Morgan Stanley banker, was one of the key negotiators for Verizon, although it was not clear how much of the fee pool he would take personally.

In a sign of the importance of the deal to banks, JPMorgan Chief Executive Jamie Dimon, Morgan Stanley Chief Executive James Gorman, as well as the bank's top dealmaker Robert Kindler got personally involved. Last week, before a Verizon board meeting Dimon, Kindler, Schwartz and Taubman talked about the time it had taken for the deal to come together.

Kindler and Dimon joked how Morgan Stanley had signed the engagement in 2004 when Taubman was still at the bank, while JPMorgan inherited the advisory role from Bear, thanks to the work done by Schwartz and his team at the time, people familiar with the matter said.

"I had some very good CEOs that would give me advice on how to try to get something this complicated and this big done," Verizon Chief Executive Lowell McAdam told Reuters in an interview on Monday. "It was a good group of gentlemen who all had the right objectives in mind."

RIGHT PRICE

The news of Verizon's latest effort was first reported by Reuters in April. At the time, sources said Verizon was contemplating a $100 billion cash and stock bid. Verizon was ready to push aggressively but preferred a friendly deal.

The renewed attempt came as Verizon, which led the U.S. pack in wireless customer growth and profitability, needed new ways to grow. The U.S. market has been slowing because most people already own smartphones and competition has been intensifying.

Record low interest rates, thanks to the U.S. Federal Reserve's unprecedented policy of easy money, also meant that financing for such a large deal would be cheap. Verizon is raising $61 billion in bridge loans for the deal.

"At some point in the future, where Vodafone turns around, and says, 'OK now we're ready,' Verizon may be off to do something. Interest rates may be different," a source said in April. "This is a moment in time, we should not pass."

But Vodafone Chief Executive Vittorio Colao was biding his time, making it clear he would only sell the 45 percent stake at what he considered the right price.

Guggenheim bankers helped Verizon to put together key terms of the proposal. Around May, Verizon Chief Executive Lowell McAdam called Taubman for advice as well. McAdam also talked with Dimon, Schwartz, James Gorman and others several times.

Taubman joined the deal team after his non-compete agreement with Morgan Stanley expired. The former co-head of Morgan Stanley's investment bank had left the Wall Street firm earlier this year after it became clear that Gorman planned to choose his long-time rival Colm Kelleher as the sole head of the unit.

The presence of a senior banker such as Taubman, who spent 27 years at Morgan Stanley as a dealmaker, as an independent adviser is rare in transactions of such size. Last year, former Citigroup banker Michael Klein worked as an independent go-between on the Glencore-Xstrata merger.

"When Paul left Morgan Stanley, he had tremendous amount of corporate knowledge... So I called him up and said: Paul, we may be getting serious here and I'd like to have you back in the game," McAdam told Reuters. "And he came off the bench and came right in ... it was a big plus."

Talks picked up in earnest about a few weeks ago, as Verizon grew concerned that its window of opportunity may be closing. With the Fed indicating that it would start tapering its massive bond buying program, called quantitative easing, rates looked set to go up. Moreover, Verizon's own stock has been declining since April, falling more than 4 percent in August alone.

That prompted Verizon to bid $130 billion for the stake, up from roughly $100 billion it had envisioned earlier this year.

The rest of the details came together over the last month. The two sides spent the Labor Day weekend, typically one of the slowest times of the year for markets, negotiating the final details. The boards met to vote on the deal, leading to the announcement on Monday.

(Reporting By Soyoung Kim in New York, additional reporting by Anjuli Davies and Sophie Sassard in London, Editing by Paritosh Bansal, Giles Elgood and Bernard Orr)

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