US incumbent Verizon Communications and UK operator Vodafone have held discussions about a range of options to combine their businesses or parts of it, Bloomberg reported citing sources.
Following the publication of the article Vodafone’s market…
US incumbent Verizon Communications and UK operator Vodafone have held discussions about a range of options to combine their businesses or parts of it, Bloomberg reported citing sources.
Following the publication of the article Vodafone’s market capitalisation shot up by more than £5bn. After closing at £168.80 (US$254.14) on 5 March equalling a market cap of roughly £82.5bn (US$124bn), its value reached £87.8bn (US$132bn) the following day, trading at £179.60 (US$270.40).
According to the Bloomberg report Verizon is keen to acquire Vodafone’s 45% stake in Verizon Wireless this year, although the talks have not progressed to substantial negotiations and are no longer under way.
A subsequent CNBC report today also said no active talks are taking place between the two operators at the moment.
Discussions are likely to start again this year, the people familiar with the matter told Bloomberg, and Verizon would look to acquire the Verizon Wireless stake with existing cash and new debt.
Vodafone has explored the idea of using the proceeds from the sell off, which could be as high as US$115bn according to estimates, to make purchases in Europe, the report said. The UK-based telco has been linked with possible acquisitions of German cableco Kabel Deutschland and Spanish operator Yoigo in recent weeks.
A full merger between Verizon and Vodafone was last discussed in December. Talks reportedly broke down as the two sides could not decide where to headquarter the combined company and who would lead it.
In a note to investors Bernstein Research suggested that Vodafone may want to take the opportunity to sell its stake in Verizon Wireless.
“For Vodafone, Verizon Wireless’ valuation is sky high and there are many reasons to fear that the US wireless market will deteriorate, so why stick around to find out if we’re right?” Bernstein said.
The analysts added that they did not think Verizon would be interested in a full blown merger because Vodafone carries “what are now relatively low quality European assets”.
But New Street Research suggested that a Verizon acquisition of all of Vodafone would create the most value for the companies. It expects Vodafone to generate close to 70% of its earnings from Verizon Wireless over the next few years, up from 40% in 2010.
“We believe this shift in mix is one of the factors that make a Verizon acquisition of all of Vodafone more likely now than in the past.”
