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Vodafone Group Plc Message Board

  • buffet_munger buffet_munger Mar 19, 2013 9:09 PM Flag

    David Einhorn’s Vodafone Call is Picking Up Reception


    David Einhorn’s Vodafone Call is Picking Up Reception

    By Roger Baettig | March 19 2013 12:44 PM


    David Einhorn made the case in his most recent quarterly letter to investors that the market was placing no value on Vodafone’s (NASDAQ:VOD) stake in Verizon Wireless. However, due to the increasing dependence on the wireless business, the Greenlight Capital founder explained it would not be surprising if Verizon Communication’s (NYSE:VZ) decided to buy all of Vodafone to gain total control of Verizon Wireless. “Maybe there is an investment banker with time on their hands reading this letter,” he wrote. The call to action has not gone completely unanswered.

    Citigroup is now calling for Verizon Communications to purchase the 45 percent of Verizon Wireless is does not already own from Vodafone. Analysts at the bank believe a leveraged deal is possible and would increase Verizon’s earnings and cash almost immediately. A deal would likely place a value of the Vodafone stake between $106 billion and $137 billion, and take between $70 billion and $80 billion in debt to accomplish, according to the WSJ.

    Verizon tried to buy Vodafone’s stake in 2006 but failed. Einhorn is not the only person generating interest in another deal. Earlier this year, Verizon CEO Lowell McAdam said he would “love to own all of that asset” when referring to Verizon Wireless. Shortly thereafter, Vodafone CEO Vittorio Colao said his company has an open mind “on everything.”

    Amid the buyout speculation, Citigroup upgraded shares of Verizon to Buy from Neutral on Monday, and hiked its price target to $54 from $46. In fact, Citigroup notes that Verizon may avoid any capital gains tax on the deal if it is conducted offshore, making the move even more attractive. The bank also upgraded shares of Vodafone to Buy from Neutral.

    Sentiment: Strong Buy

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    • "Verizon tried to buy Vodafone’s stake in 2006 but failed."

      I bet VOD shareholders are glad that they didn't sell out their VZW stake to VZ 7 years ago! Today, VZW has little debt, and is growing and paying a very nice dividend. If VOD holds VZW for another 7 years, they'll collect a bunch of dividends, and shareholders should still be quite happy holding a more valuable asset.

      The most likely alternative is to sell VZW to VZ, pay a huge value-destroying tax, perhaps take some over-valued and over-leveraged VZ stock, and then probably spend the remaning cash on depression-struck EU assets. I hope VOD holds its VZW stake, but can understand why many (e.g., investment bankers, short term traders) want a deal to happen.

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