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No wonder Vodafone investors are excited: Verizon deal would be the big one No wonder Vodafone investors are excited: Verizon deal would be the big one
(7 months later)
We've seen a couple of $25bn-ish deals recently – Virgin Media and Heinz – so how about a mega-merger worth ten times as much? Yes, the whispers around Vodafone and Verizon Communications are back, courtesy of a Bloomberg report that the two companies had discussed a full combination as recently as December.We've seen a couple of $25bn-ish deals recently – Virgin Media and Heinz – so how about a mega-merger worth ten times as much? Yes, the whispers around Vodafone and Verizon Communications are back, courtesy of a Bloomberg report that the two companies had discussed a full combination as recently as December.
That was good enough for a jump of almost 7% in Vodafone's share price, which is a serious movement for a company worth £85bn. And one detail of the report was intriguing: the idea that Vodafone could find a way around a potential $20bn-plus tax bill if it were to pursue the simpler option of selling its 45% stake in Verizon Wireless, the US mobile business, to Verizon.That was good enough for a jump of almost 7% in Vodafone's share price, which is a serious movement for a company worth £85bn. And one detail of the report was intriguing: the idea that Vodafone could find a way around a potential $20bn-plus tax bill if it were to pursue the simpler option of selling its 45% stake in Verizon Wireless, the US mobile business, to Verizon.
Treat the tax point with caution – clarity is roughly zero – and note that the two companies are not talking currently. For all that, it's easy to understand why Vodafone's shareholders are excited by the whiff of something in the air.Treat the tax point with caution – clarity is roughly zero – and note that the two companies are not talking currently. For all that, it's easy to understand why Vodafone's shareholders are excited by the whiff of something in the air.
The Verizon Wireless unwind, if it were to happen, is the big one. It is now clear that Vodafone played a blinder by sitting of its 45% stake on Verizon Wireless in the long years in which the business was paying no dividends. Market leadership in the mobile in the US was regained and payday arrived eventually: Verizon Wireless distributed $18.5bn (£12.2bn) between the two partners last year.The Verizon Wireless unwind, if it were to happen, is the big one. It is now clear that Vodafone played a blinder by sitting of its 45% stake on Verizon Wireless in the long years in which the business was paying no dividends. Market leadership in the mobile in the US was regained and payday arrived eventually: Verizon Wireless distributed $18.5bn (£12.2bn) between the two partners last year.
But great investments sometimes require great exits and a beautiful finale from Vodafone's point of view might be a sale of its 45%-owned asset at a moment when Verizon is willing to pay over the odds to get 100% control of Wireless' cash flows. Alternatively, a grand all-share merger, however incredible it seems, would do the trick if Vodafone's share of the combined pie was inflated beyond current market values.But great investments sometimes require great exits and a beautiful finale from Vodafone's point of view might be a sale of its 45%-owned asset at a moment when Verizon is willing to pay over the odds to get 100% control of Wireless' cash flows. Alternatively, a grand all-share merger, however incredible it seems, would do the trick if Vodafone's share of the combined pie was inflated beyond current market values.
The timing, after all, would be ideal. Bernstein's analysts are not alone in thinking Vodafone must "choose its poison" in many parts of Europe – either suffer a squeeze on its business or buy cable assets to counter the bundled "quad play" offers from telecom, cable and integrated rivals. A juicy Verizon payday would make the poison seem less awful, even if there would inevitably be an almighty row over how the spoils should be divided between returns to shareholders and retentions to invest.The timing, after all, would be ideal. Bernstein's analysts are not alone in thinking Vodafone must "choose its poison" in many parts of Europe – either suffer a squeeze on its business or buy cable assets to counter the bundled "quad play" offers from telecom, cable and integrated rivals. A juicy Verizon payday would make the poison seem less awful, even if there would inevitably be an almighty row over how the spoils should be divided between returns to shareholders and retentions to invest.
Vodafone's lively share price demonstrates shareholders' enthusiasm for the right deal. It's not a sign, of course, that Verizon is willing to pay up to make their dreams come true. Bernstein, for one, suspects the more likely outcome is that the current stand-off holds for longer than current share prices imply.Vodafone's lively share price demonstrates shareholders' enthusiasm for the right deal. It's not a sign, of course, that Verizon is willing to pay up to make their dreams come true. Bernstein, for one, suspects the more likely outcome is that the current stand-off holds for longer than current share prices imply.
We shall see, but Vodafone chief executive Vittorio Colao finds himself on the spot. Every time there's talk of a purchase of an expensive cable asset, like Kabel Deutschland, his share price goes down; every time a Verizon Wireless deal is rumoured, Vodafone's shares rise. His five-year reign, one suspects, will be defined by what he does next.We shall see, but Vodafone chief executive Vittorio Colao finds himself on the spot. Every time there's talk of a purchase of an expensive cable asset, like Kabel Deutschland, his share price goes down; every time a Verizon Wireless deal is rumoured, Vodafone's shares rise. His five-year reign, one suspects, will be defined by what he does next.
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