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Verizon Wireless drives Vodafone shares

Jan 08 2013 12:23 Reuters

((Carl Court, AFP))

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London - Shares in Vodafone rose almost 3% on Tuesday after its partner in US joint venture Verizon Wireless said it would be "feasible" to buy out the British group in what would be one of the biggest corporate deals ever.

Verizon Communications chief executive Lowell McAdam told the Wall Street Journal that "we have always said we would love to own all of that asset", which is 55% owned by Verizon Communications and 45% by Vodafone.

Investors in both groups have long speculated about the future of Verizon Wireless's ownership, especially after Vodafone embarked on a programming of selling stakes in businesses around the world that it did not control.

That was aimed at streamlining its portfolio and returning cash to shareholders who felt the company's share price did not reflect the sum of its many individual parts.

The two parent groups have also clashed in recent years over when and whether Verizon Wireless should pay its two owners a dividend and the comments from McAdam are likely to reignite the issue.

"I think [a deal] is feasible," he told the newspaper. "Our wireline business is getting stronger and as that gets stronger, it makes it easier."

McAdam added that Verizon could buy the stake outright, or there are "lots of different ways we could do it".

"As things change in the environments that both of us operate in, if there is an opportunity, we would always be in the position to buy Vodafone out".

Analysts said the comments were an interesting development in what is likely to be a long-running issue for the two companies, but they did not think Vodafone would want to sell the asset yet.

Vodafone chief executive Vittorio Colao said in November that he could not rule out an exit from the United States,  shortly after reporting financial results that showed how the Verizon Wireless business had become the main growth engine for Vodafone, the world's second largest mobile phone group.

With consumers in Europe cutting back on making phone calls, the Verizon business contributed over half of Vodafone's adjusted operating profit in the first half of the financial year, and was a key driver of growth.

"It is an interesting opening salvo from the CEO," Espirito Santo analyst Will Draper said. "However, we do not believe that Vodafone is interested in selling at this stage. Verizon Wireless represents over half its earnings and is a rare source of growth, as well as underpinning its dividend growth too.

"In other words the offer price from Verizon would need to be compelling and we are not sure that it has the firepower for that, yet. It is more likely in our view that the status quo persists for a while longer."

Draper said he put the enterprise value of Verizon Wireless at £168bn ($270bn), which on that basis, would put the 45% stake at £76bn before any discounts for taxes or the fact it is a minority holding.

Bernstein analyst Robin Bienenstock said she thought it would be a good moment for Vodafone to sell its stake, as it could be at the maximum value today.

"We are sceptical that (a) the two companies can find a price on which they agree and that (b) in the event of any sale shareholders of Vodafone would simply be handed any proceeds.

"Rather, we think any sale proceeds would be reinvested in helping solve the difficult structural problems Vodafone faces in Europe," she said.

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