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Earlier this week, Verizon Communications denied that it was preparing a bid for Vodafone's 45% stake in Verizon Wireless, the biggest mobile operator in the United States. Speculation on a deal has been swirling in the business world for much of the past decade, and has seen Vodafone's share price soar in the last few months. Verizon has openly admitted that it wants full control of this joint venture, whilst Vodafone has come under pressure from its shareholders to crystallise the enormous value of an asset that they do not control.
The numbers being bandied about are truly staggering, with equally massive consequences for the US and UK mobile markets. Verizon Wireless has been valued at more than $250 billion. Vodafone's stake in Verizon Wireless is therefore worth $115 billion, or 75% of Vodafone's market value. These numbers are part of the reason why a deal has been so hard to agree. Whilst the UK mobile market has stagnated in the last decade, the US market has grown enormously, as Verizon Wireless' valuation attests. Recession is not a word that has entered the lexicon of the US mobile market.
So what are the options available for both companies? Verizon could buy Vodafone's 45% stake for a cool $115 billion. In reality, it is such a huge deal that analysts reckon on Vodafone ending up with a third of Verizon as a result. This would not solve Vodafone's current problem- it would still have a valuable US asset that it doesn't control. For its part, the Vodafone board would prefer a full merger, allowing its shareholders to reap greater dividends from the lucrative US arm of Verizon. Unsurprisingly, this is not a good deal for Verizon; they would end up with Vodafone's unattractive European operations, diluting the value of the company.
However, this week raised the possibility of a third option in this long running saga. Reports had suggested that AT&T, America's second largest mobile operator, would be interested in helping Verizon to break up Vodafone's sprawling assets. With such intense competition in the American market, it is thought that AT&T wants to expand abroad, a decade after it withdrew from its overseas commitments. In this deal, Verizon would take 100% of Verizon Wireless, with AT&T taking the rest of Vodafone. This deal would signal the arrival of a major new player in the UK market, and reinvigorate Vodafone's UK operations after a decade of flagging performance.
So what does the future hold for Vodafone? This once dynamic and bold UK conglomerate could be broken up, as would surely have to happen for Verizon to get the deal that it wants. However, an entry into the European market, and helping out their main US rival, makes very little sense for AT&T. If Vodafone is bought out of its 45% stake in Verizon Wireless, what will they do with the huge financial firepower that they would have? A shakeup of the UK and European telecommunications market could be at hand. Let us hope that they use some of that money to fix the signal coverage at my house.