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Vodafone Group Public Limited Company Message Board

  • buffet_munger buffet_munger Mar 20, 2013 8:51 PM Flag

    Vodafone (VOD) -trade at 25% over book value vs VZ 4X Book value and T at 2X Book value : What changed recently

     

    Vodafone (VOD) -
    What changed recently - The driver of Vodafone's recent stock market gain is obvious. Verizon (VZ) is finally serious about buying out Vodafone's 45% stake in Verizon Wireless. David Einhorn has stated recently, and I agree, that the market is placing little to no value on VOD for this asset. The sale would be worth anywhere from $106B to $137B according to the Wall Street Journal.

    Valuation - VOD sells for just 25% over book value. For comparison, Verizon sells at over 4x book value and AT&T (T) sells for more than 2x book value. VOD yields just under 5.5% based on 2012's dividend payouts. Despite the juicy dividend, the stock sells at just over 11x forward earnings.

    What will keep the momentum going - The buyout of Verizon Wireless makes too much sense to not think it is has a high probability of happening. Interest rates are low, Verizon Wireless is performing well and it would eliminate the need for Verizon to continue to pay a dividend (around $10B annually) to Vodafone. Citigroup believes Verizon could easily raise $80B in debt to make this happen. If the deal goes off at the mid-point of valuation (say $120B), this will leave Vodafone with over 300mm customers for a market cap of around $65b for its non-Verizon wireless businesses. It will also have the financial flexibility to continue to expand its presence in emerging markets. I would have to believe the shares have to climb into at least the low 30's from $28 if deal is struck.

    Sentiment: Strong Buy

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    • "The buyout of Verizon Wireless makes too much sense to not think it is has a high probability of happening. Interest rates are low, Verizon Wireless is performing well and it would eliminate the need for Verizon to continue to pay a dividend (around $10B annually) to Vodafone."

      I totally agree with all the articles posted that support VZ's desire to acquire VOD's stake in VZW. It makes a lot of sense for VZ to take full control of VZW. It would be accretive, and they can do so efficiently with interest rates so low today.

      Notice how the majority of the artilcles discuss the advantages to VZ if they were to acquire all of VZW. No doubt their investment bankers are pitching all sorts of structures to get it done so they can rake in their big fees. Unfortunately for VZ, they can't force VOD to sell its valuable VZW stake. A sale of VZW means that VOD shareholders give up their best asset. An unlevered VZW that is growing and throwing off a lot of cash to VOD.

      In exchange, VZ hopes VOD would choose to either take a huge tax hit, or avoid taxes by taking rich and highly leveraged VZ stock. Either alternative leaves VOD with far less cash to reinvest into relatively poorly performing EU assets. It's hard to see how such a deal could be accretive to VOD's recurring earnings and cash flow! Of course, there are other hurdles to getting a deal done such as regulatory or management issues, but really, the financial hurdle is the toughest one for VOD to justify. It doesn't make any sense for VOD to sell its prime VZW asset and then reinvest less money into a sub-prime assets.

      • 1 Reply to betting_my_bundle
      • VZ buying VZW "would eliminate the need for Verizon to continue to pay a dividend (around $10B annually) to Vodafone." Very low interest rates would allow VZ to finance the purchase of VOD's VZW stake very cheaply. It would be accretive to VZ - what a great deal!

        If VOD sells its VZW stake, think about how much cash they will have after paying taxes. It's even less if they take some VZ stock instead of cash. Now what kind of return on this amount are they going to have to earn in order to match the "around $10B annually" that they'll get from VZW if they don't sell? This is why it doesn't make any sense for VOD to sell its prime VZW asset and then reinvest less money into risky or lower return assets. It looks like a dilutive deal for VOD.

 
VOD
34.85+0.20(+0.58%)Dec 26 4:00 PMEST

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