RealMoney Silver - Timing Could Be Right for Vodafone

Timing Could Be Right for Vodafone
By Scott Moritz
Senior Writer
7/16/2007 11:44 AM EDT

Vodafone (VOD) says it has no plans to make a takeover offer for Verizon (VZ) , but some observers say the timing would be good.

After surging 7% in premarket action on a report of the possible $160 billion deal, Verizon shares were up about 2% in midday trading Monday. The Financial Times blog Alphaville said Vodafone was considering some options regarding its 45% stake in Verizon Wireless. Among the options was a plan to buy all of Verizon and possibly spin off its conventional nonwireless business.

Given Vodafone's denial statement, the deal is probably not imminent. But industry observers see reasons to expect future developments.

"The timing would be good for Vodafone," says one Wall Street money manager. "For one thing, Vodafone's currency, the sterling, has risen considerably over the dollar."

The U.S. dollar has been at some of its weakest levels against the British pound in more than a decade and has also been setting record lows against the euro.

Observers say Vodafone is at a bit of a crossroads. CEO Arun Sarin has been under pressure to trim some of the company's vast wireless investments. But a massive acquisition could help fortify Vodafone's position as the world's largest wireless telco.

"They could listen to their shareholders and continue to sell off assets and pay big dividends, but what fun is that," says the money manager. "I think they want to go for the glory."

Speculation has been swirling for years that Verizon would have to pay billions to buy out Vodafone's 45% stake in the fast-growing cell phone service. But with Verizon having loaded itself down with debt to roll out its FiOS fiber optic TV service, the prospect of having to raise more cash to buy out its partner loomed as a concern among investors.

Last August, CEO Ivan Seidenberg said he and Vodafone chief Sarin had hashed out their differences and that "the issue is pretty much resolved over the next several years."

And it would also be a good time to buy Verizon as it continues the costly FiOS expansion effort.

Verizon shares stand to rise if the company's second-quarter financial reports show that it has managed to control costs on its FiOS effort. Verizon is scheduled to release its earnings report in two weeks.

Verizon shares rose 93 cents to $42.69 after earlier touching $43.11, putting them within a dollar of their 52-week high. Vodafone dropped 20 cents to $33.33.