Will Vodafone-Verizon Talks 'Lead to Nothing'?

By Craig Galbraith Comments
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**Editor's Note: Please click here for a recap of the biggest communications mergers in Q2 2013.**

After reports of talks being on again, off again, on again — the largest communications deal in 10 years now seems on the verge of happening.

Vodafone confirmed yesterday that it is talking with Verizon again about selling the U.S. communications giant its 45 percent stake in Verizon Wireless. That would make Verizon the sole owner of America's largest wireless operator. Speculation is that the deal could be worth $130 billion, something the industry hasn't seen in a decade. Bloomberg sources say an agreement could be in place by early next week.

The timing for the sale is right, say at least two analysts.

“I don't think I can recall a deal that has been mooted as many times as this one, only to lead to nothing on every occasion," noted Yankee Group VP of research, Declan Lonergan. "This time around, however, the sources appear to be somewhat more certain. So, let's assume it happens. From Vodafone's perspective, this marks the continuation of a recent trend whereby the company has been rationalizing its assets. I don't think it ever had a strategic interest in maintaining or expanding its U.S. operation, and it has been on the lookout for an opportunity to exit that market when the price was right. I expect to see Vodafone concentrate instead on markets where it has full operational control and where its brand is an asset. I also expect to see Vodafone expand its land-line presence where possible to compete more effectively in multi-play-centric countries. Germany is a notable recent example where Vodafone is acquiring the country's largest cable operator Kabel Deutschland. Overall, the U.S. was never really part of Vodafone's long-term plans, and now looks like the right time to sell."

"We believe Verizon's goal remains to acquire the outstanding interest in whole or part as soon as economically feasible," said Canaccord Genuity analyst Greg Miller. "We believe that under the right conditions, the acquisition of part or all of the remaining interest in Verizon Wireless could benefit both parties. We estimate that at 7.5-8.0x 2013E EBITDA and funded with 50-60 [percent] debt, the transaction could be accretive to Verizon shareholders on both EPS and FCF/ share after dividend."

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