Reuters is now reporting that Vodafone (News - Alert), the second biggest mobile phone carrier globally, is actively figuring out its future.
It’s not bad being number two, but with serious options on the table, Vodafone chief Vittorio Colao has choices to make. Vodafone has a healthy stock position in Verizon Wireless (News - Alert), and the value of these shares constitutes some three quarters of Vodafone’s overall worth – around $115 billion.
Now Verizon is pressuring Vodafone to make a move. The U.S. telecom provider wants to do a deal, reportedly to either buy back the shares or perhaps even buy Vodafone entirely.
Meanwhile, the London-based Vodafone does great in Europe, but has no real foothold in the enormous U.S. market. If is severs its stock ties with Verizon, it may have lost its best chance to crack the American market.
Vodafone may be larger than Verizon Wireless in terms of pure revenue, but the U.S.-based Verizon is number one in America, a market Vodafone dearly covets. And right now, given the relative valuations of the two companies, is a good time financially to sell. But what makes sense for the short term bottom line isn’t always the best strategy, and therein lies Colao’s dilemma.
In fact, while Vodafone sees revenue fall in the somewhat saturated European market, Verizon Wireless is booming across the pond.
Meanwhile, Verizon itself is in a bind. Verizon Wireless is immensely profitable, yet 45 percent of the wireless company is owned by Vodafone, meaning Verizon Wireless doesn’t have full control of its own destiny.
Two Companies on the Move
Observers say Colao, who has run Vodafone for the last five years, has done well expanding the footprint and streamlining operations at the same time. But the market hasn’t been completely kind in rewarding those efforts, and Vodafone operates in some slower growth or even declining regions.
In fact, Vodafone recently cut 1,700 jobs in Spain and Italy.
Whether or not a deal happens depends largely on Vodafone shareholders, and news of Verizon’s heightened interest has caused Vodafone shares to rise some 11 percent in less since early March.
Vodafone historically had a foothold in the U.S. Fourteen years ago Bell Atlantic and the U.S. asset of Vodafone came together to create Verizon Wireless, which is how Vodafone came to own nearly half of the U.S. wireless concern.