For those of you who saw my article on April Fool’s Day that Google was going to buy Vodafone’s 45 percent stake in Verizon Wireless, I’d like to thank all of you for the kind words about having given you a good chuckle. Interestingly, it turns out that reality can be stranger than satire or fiction, as Verizon was forced to issue a statement quashing rumors that had sent stock markets into a tizzy that it had no plans to join arch rival AT&T in a bid to purchase Vodafone.
But while putting that one to rest, it did say it remains interested in purchasing Vodafone’s share of Verizon Wireless. Wow! Unlike my story, this was no joke.
Quashing the rumors of a Vodafone takeover
Verizon issued a statement that was short and to the point after the rumors that it and AT&T were contemplating a Vodafone purchase.
"Verizon Communications Inc notes the recent press speculation regarding a potential merger with or purchase by Verizon of Vodafone…As Verizon has said many times, it would be a willing purchaser of the 45 percent stake that Vodafone holds in Verizon Wireless. It does not, however, currently have any intention to merge with or make an offer for Vodafone, whether alone or in conjunction with others."
AT&T and Vodafone have been silent about all of this, leaving it to Verizon to set things straight.
Timeline and repercussions
All of this got rolling on April 2, after the Financial Times Alphaville blog cited unnamed sources as saying Verizon and AT&T were working on a joint bid to buy Vodafone. The blog said that, under the plan, Verizon would take Vodafone's U.S. assets and AT&T would take the rest.
The rumors initially sent troubled Vodafone shares rocketing up to a 10-year high, but the stock quickly came down to earth once the speculation had been dispelled. This leaves as an open question what Vodafone CEO Vittorio Colao is likely to do to shore up the company’s balance sheet. He said he has an “open mind” about selling the minority position in Verizon Wireless back to Verizon.
However, he has not publicly discussed the sale of the asset to others, and feelings of Vodafone board members on all of this remain private.
Colao’s situation is complicated to say the least. Vodafone, in no small measure due to the economic problems in Europe where it is a dominant mobile services provider, has been losing money. It has only been the fact that it has made billions of dollars in profits from its Verizon Wireless holding that the losses have not been much higher. In short, at this time it would be hard to pull the trigger on a sale. Not only does Vodafone need the positive cash flow, but because the value of the Verizon Wireless stake is so much more than Vodafone paid for it back in 1999, the company would have a huge tax problem on a sale it can ill afford, even given the large valuation being attributed to such a sale.
It should also be noted that though the statement from Verizon seems categorical, there appears to be some wiggle room. After all, it just says, “it currently has no intention.” That was yesterday, and who knows what the future may bring, including how a blockbuster bid might sway the Vodafone board.
Crippled companies do make for interesting targets, and Vodafone with a market cap of roughly $145 billion and operations that span Europe and include a major presence in India, is an attractive target, even if a lot to digest. It is why the rumors that AT&T would join with Verizon in a deal and distribute the assets to suit their strategic objectives got the reaction it did when the blog came out.
It made sense, seemingly for all involved.
That said, any move that would put a U.S.-based carrier as owners of such an important asset as Vodafone was certainly draw a lot of scrutiny from U.K. and other European regulators. It’s analogous to the uproar that would happen if the reverse were the case and a foreign company made a move to buy AT&T or Verizon.
There are a lot more than just business interests at stake, with mega-deals like these even just in the rumor stages.
Speculation about what will happen with the minority stake of Verizon Wireless, as well as the future of Vodafone in its entirety, is sure to remain a hot topic despite the quenching of this latest fire. In fact, in the realm of pure speculation, my suspicion is that something big will break on this front before next April Fool’s Day. Realities are that Verizon would love to reach a deal so it can get full control of Verizon Wireless, and Vodafone shareholders are grumpy.
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