Vodafone in talks to sell stake in Verizon Wireless

"HL COMMENT (29 AUGUST 2013)

Talks with Verizon Communications: Following further press speculation, Vodafone today confirmed that it is in discussions with Verizon Communications Inc. regarding the possible disposal of Vodafone's US group whose principal asset is its 45% interest in Verizon Wireless. The share price rose by over 9% in opening stockmarket trade. Current speculation suggests that Vodafone could sell its 45% share interest for approximately $130 billion. For Vodafone, a deal would add to management's efforts to exit joint ventures where the company does not have full control. In the past three years, Vodafone has divested stakes in French carrier SFR as well as phone holdings in Asia and Poland.

More cautiously, discussions between Vodafone and Verizon Communications have been on and off for sometime. Vodafone management today also noted that "there is no certainty that an agreement will be reached."

In all, analyst opinion for Vodafone remains positive, currently pointing towards a buy. A sale of its 45% share stake in Verizon Wireless would leave management to concentrate on its more challenged operations in Europe, whist also allowing greater focus on growth regions within the Emerging Markets – potentially making acquisitions. Speculation also suggests that a proportion of the sale cash could be returned to shareholders.

Negative Points:
Discussions between Vodafone and Verizon Communications have been on and off for sometime. Vodafone management today noted that "there is no certainty that an agreement will be reached."
The US mobile market has proved a growth area for Vodafone over recent years, a contrast to more challenged operations in Europe, particularly Southern Europe. The CEO as of the group's mid July first quarter trading update noted that "regulation, competitive pressures and weak economies, particularly in Southern Europe, continue to restrict revenue growth."
A sale of the Verizon Wireless stake would end a partnership of more than a decade, a relationship which has seen Verizon pay significant dividend payments to Vodafone.
Vodafone's previous acquisition track record is arguably mixed. It spent more than 150 billion euros in 2000 to acquire Germany's Mannesmann – significant write-downs in value were later made.
Economic conditions in some Emerging Markets have recently become more challenging. Uncertainty over the outlook for the Indian economy has risen – Vodafone retains a significant presence in the country.
Competition across the cable industry, which Vodafone has joined given its takeover of Kabel Deutschland, remains intense. BT Group is soon to offer its own sports channels whilst rival TalkTalk has now launched its own TV offering. Liberty Global only recently completed a $24 billion acquisition of UK cable giant Virgin Media.
Regulatory decisions or changes in the regulatory environment could impact on the business moving forward.

Positive Points:
Sales proceeds from a potential sale leave Vodafone management with various options in terms of using the cash. Acquisitions could be made to bolster current operations, cash could be returned to shareholders or a combination of the two could be made.
As of the group's July (2013) first quarter trading update, Africa, Middle East and Asia Pacific (AMAP) service revenue including joint ventures increased by 5.9%. In India service revenue was up 13.8% driven by a more stable pricing environment, an improved process of customer verification and continued strong data revenue growth. In Emerging Markets, smartphone penetration continued to increase and was reported at 9.2% in India and 25.4% in Turkey.
Concerns regarding increasing competition in the US mobile market currently persist.
Following the group recent bid for Kabel Deutschland, the Management and Supervisory Boards of Kabel Deutschland welcomed the Transaction. The combination of Vodafone and Kabel Deutschland will create a leading integrated communications operator, with €11.5 billion (£9.8 billion) of pro forma revenues in Germany. Following completion of the transaction, Vodafone will have 32.4 million mobile, 5.0 million broadband and 7.6 million direct TV customers in Germany. Vodafone expects in-market cost and capital expenditure synergies with an annual run-rate by the fourth full year post completion exceeding €300 million (£260 million) before integration costs.
Vodafone previously received a further £2.1 billion from Verizon Wireless. Vodafone net debt at 30 June 2013, including joint ventures, was £24.9 billion, a £2.1 billion improvement during the quarter following the receipt of the £2.1 billion dividend.
Vodafone Red, the group's recently introduced pricing approach to Europe is performing well according to previous management comment. It now has 5.2 million customers with the goal to reach 10 million customers by March 2014.
The company previously announced it aimed to offer 40% 4G coverage in its five main European markets by March 2015.
The group's dividend payment remains both attractive and progressive."

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i can't see it not happening now..

http://www.bbc.co.uk/news/business-23923669