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Speculation heightens on the "deal of the decade" for Vodafone and Verizon

Forget the talk about Michael Dell's takeover of the eponymous company and Facebook Home, Ashley Hibben argues that this is a deal with potentially eye- watering consequences

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Vodafone's 45% stake in Verizon Wireless is worth a staggering $115 billion
Vodafone's 45% stake in Verizon Wireless is worth a staggering $115 billion

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.

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3 Comment

Jonjon Posted on Thursday 13 Aug 2020

Have you read Verizon announcement ?? They said they have no intention to merge,buy the whole of vodafone by means of partnering to other telco so the 3rd option you said is out of the list,the only option is to buy the 45% vodafone stake by cash and stocks not breaking up vodafone


Ashley Posted on Thursday 13 Aug 2020

This story was still very fluid when it was written. What I can say is that Vodafone, minus its Verizon stake, is not worth a huge amount. Although AT&T have denied that they are interested, and after all it was their overseas involvement that almost brought the company down in the early 2000s, that is not to say that Vodafone wouldn't be an attractive target. Its European operations are not worth a huge amount, and Vodafone may therefore need a tie- up with a more dynamic company to survive in the future. This is why the Vodafone board is so keen on a merger with Verizon, whilst Verizon doesn't want to be saddled with a business that isn't worth much to it.


dan Posted on Thursday 13 Aug 2020

So AT&T and Verizon are going to team up and make a takeover bid for Vodafone? Unlikely.

And it wouldn't see the arrival of a new player in the UK, it would see a re-branding of an existing player in the UK, if they were mad enough to dispense with a well-known valuable brand and replace it with one that is unknown to consumers. More likely they would keep the Vodafone brand in the UK market and so consumers would see no change. Hardly a shake-up of the European telco market.


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