The telecomm industry’s version of Groundhog Day is back. Vodafone and Verizon are once again talking about their talks to buy out Vodafone’s stake in the Verizon Wireless network. Is it real? Who knows? Does the deal make sense? Not for Verizon, but certainly for Vodafone, which issued a statement this morning confirming the talks.
This time around, the New York Times suggests that the 45 percent stake Vodafone holds in Verizon’s network could be worth $ 115 billion. The Wall Street Journal suggests the deal will be done within the week and says Verizon might pay as much as $ 130 billion to regain sole ownership. So is this for real, or just another attempt for the firms to test the market reaction to such news? If so, the market’s response on Verizon’s side seems to view a deal positively, with the stock opening a modest 4 percent higher.
Telecommunications analyst Christopher King of Stifel Nicolaus questions why this deal would benefit Verizon, referring back to an April report on the same rumors. In a note issued this morning he wrote:
Although recent stock activity might suggest that Verizon’s stock price would benefit from these reports, we continue to question the need for such a transaction from Verizon’s perspective. As we detailed in our April 30 note, there would obviously be no synergies to be seen from such a transaction—the deal would be strictly a financial one. Verizon controls the asset today (and its balance sheet and dividend payouts), so there would be no change there. Also, although the company would likely enjoy attractive financing costs, with the stock within shouting distance of an all-time high and interest rates still historically low (albeit rising), the costs would still be significant for such a large transaction. In addition, Vodafone’s tax liabilities associated with such a transaction remain muddled, depending on how such a transaction would be structured.
Meanwhile, Vodafone said in June it is also in talks (it confirmed) with Germany’s Kabel Deutschland , Germany’s cable ISP. Such a deal would give it both wireline and wireless assets in Germany, helping it compete better against rival Deutsche Telekom. But to pull that deal off (and other deals) could use more cash — hence the desire to dump its Verizon stake.
So will this Groundhog Day ever end? If the WSJ is right, we’ll know within the week.
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