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Why $130 billion Verizon-Vodafone deal makes sense

Tuesday, 3 Sep 2013 | 11:44 AM ET
Verizon CEO on the megadeal
Tuesday, 3 Sep 2013 | 9:10 AM ET
Verizon's agreement to purchase longtime partner Vodafone's 45 percent of the company is the third-largest acquisition deal of all time. Verizon CEO Lowell McAdam discusses details of the cash-and-stock buyout.

Verizon's buyout of Vodafone's portion of the wireless company will give it an edge in an industry where competition and consolidation continue to mount, said Verizon chairman and CEO Lowell McAdam.

(Read more: Vodafone CEO: We will invest in ourselves )

"You look at how the business has grown over the years—this is arguably the most valuable wireless asset in the world," McAdam told CNBC's "Squawk on the Street" on Tuesday. "We think that there is a great opportunity, and if anybody needs to be worried it ought to be T-Mobile and Sprint."

The complex offer, which includes cash and stock for Vodafone's 45 percent stake in Verizon, is the third-largest acquisition of any type in history and will require the biggest corporate bond issuance on record.

Verizon expects the deal with Vodafone to close in the first quarter of 2014.

(Read more: How should Vodafone spend Verizon's $130 billion? )

Many shareholders expected a deal this year, but speculation was for a price lower than the agreed-on $130 billion. McAdams said the acquisition price is fairly valued considering the financial and asset gains.

Verizon chairman and CEO Lowell C. McAdam
David Paul Morris | Bloomberg | Getty Images
Verizon chairman and CEO Lowell C. McAdam

"If you look, where can you buy a business that has 100 million loyal customers, 50 percent margins, that has no integration risk and a great feel in front of it to grow the business even further?" he asked.

(Read more: Cramer: Vodafone 'really attractive' if Verizon deal happens )

Full ownership will give Verizon significant financial benefits when it comes to dividends, as well as seamless integration that will allow it to work more quickly, McAdam said. Since January 2012, Verizon has paid $25.5 billion in dividends, 45 percent of which went to Vodafone, he said.

"We've got the assets, whether it be our cloud platform, our security platform, our machine to machine platform to really find the next gear. ... So we feel good about where we've landed, and it's going to create a lot of shareholder value as we go forward," he said.

The wireless industry is getting fiercely competitive as consolidation becomes more and more common. In April, MetroPCS Communications merged with T-Mobile USA, and Japan's SoftBank was given the OK in July to purchase Sprint Nextel for $21.6 billion.

McAdam said that the moves prove that there is still a lot of opportunity.

"There's only one reason SoftBank bought Sprint: They see tremendous potential in this market. There's a reason why Deutsche Telekom is doing what they are doing: They see potential in this market," he said. "I think the difference for us and why we are so bullish is because no one has the assets that we have."

McAdam said that he thinks four wireless players can co-exist in the U.S. market but that he sees more merging for regional providers.

By CNBC's Cadie Thompson. Follow her on Twitter @CadieThompson.

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  • Matt Hunter is the senior technology editor at CNBC.com.

  • Cadie Thompson is a tech reporter for the Enterprise Team for CNBC.com.

  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.

  • Jon Fortt is an on-air editor. He covers the companies, start-ups, and trends that are driving innovation in the industry.

  • Lipton is CNBC's technology correspondent, working from CNBC's Silicon Valley bureau.

  • Mark is CNBC's Silicon Valley/San Francisco Bureau Chief covering technology and digital media.