Vodafone: Eat or Be Eaten?
In the UK today, soccer fans are watching the news wires closely to see which players will sign for their clubs (or leave) before the so-called "transfer deadline" at 23:00 BST Monday evening. Hundreds of millions of dollars are expected to be spent on over-valued sportsmen.
At the same time, Vodafone Group plc (NYSE: VOD) investors have also been watching the wires to see if the mobile giant's stake in Verizon Wireless is being offloaded in what would be one of the all-time corporate transfer deals of all time. No one is using the phrase "over-valued" in this case, it should be noted.
And by late afternoon UK-time, those investors were popping the champagne corks as Vodafone announced it had agreed a US$130 billion deal that would see $84 billion returned to shareholders.
Of course there are still many conditions to be met before any dal is completed, but let's assume the deal goes through in early 2014 as planned. What happens then?
Well, after passing on the rump of the proceeds to its investors, Vodafone will still have $35 billion in cash from the stake sale. Consensus suggests it will look to splash a fair bit of that on acquisitions that would firm up its backbone, metro, backhaul, and fixed/cable access network assets as well as its radio access capabilities: The company is in the process of acquiring German cable operator Kabel Deutschland for about $10 billion. (See Euronews: Vodafone Strikes €7.7B Kabel Deal.)
But it might need to have its targets lined up and be ready to shoot as soon as the Verizon Wireless stake sale closes if it's to fend off unwelcome advances. Some media reports suggest that with cash in the bank and the US stake no longer part of its corporate asset base, Vodafone might become a takeover target for either AT&T Inc. (NYSE: T) or SoftBank Corp. , both major rivals to Verizon Wireless and both of which have global aspirations.
If Vodafone is set for a few years of intense M&A activity, I hope the end result is that it remains an independent operation. The telco market is in need of some consolidation, but on a regional rather than global level. It would be better for the industry and customers (but not necessarily the banks) if Vodafone was a consolidator in Europe rather than finding itself once again part of a larger service provider with a significant stake in the US mobile market.
Europe needs the likes of Vodafone to be the leaders in creating strong regional fixed/mobile service providers -- there are only a small number of companies capable of making sense of a continent that has about 150 different mobile service providers. The market needs competition, for sure, but sometimes there can be too much.
If Vodafone becomes the target of a major takeover, that would effectively put one of the consolidators out of the action for at least a year. I hope it gets to share its Verizon bounty not just with its own investors but also those of the numerous service providers it could snap up as it builds a new empire. I'd rather see Vodafone eat than be eaten.
— Ray Le Maistre, Editor-in-Chief, Light Reading