This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

The Risks in a $100 Billion-Plus Verizon Wireless Deal

Moffett, who left Bernstein Research earlier in 2013, held a "underperform" rating for Verizon, which was somewhat vindicated by fourth-quarter earnings laden with a multibillion-dollar pension charge and high iPhone subsidies that drained wireless profit margins.

A large seller of Verizon Wireless such as Vodafone may very well consider doing so opportunistically, as the Verizon's shares sit near-record highs and earnings trajectories in the ever-changing wireless market remain a question mark.

For Vodafone investors, a Verizon Wireless sale, meanwhile, may be the last thing investors want even if deal speculation has proven a catalyst for shares in 2013.

John Hempton of hedge fund Bronte Capital recently wrote in a blog post on Bronte's Web site that if Vodafone just sold Verizon Wireless and not the whole company, its entire board should be fired on the spot.

Bernstein Research and Citigroup analysts note that after a prospective Verizon Wireless stake sale, Vodafone would be left with a deteriorating European wireless business and an even less exciting wireline presence.

David Einhorn of hedge fund Greenlight Capital said in his fourth-quarter investor letter he's betting on Verizon's acquisition of all of Vodafone, given the prospect that the wireline business holds value at bargain basement prices.

In the letter, Einhorn said Greenlight's been adding to its holding of Vodafone given his expectation Verizon might make a play for the whole company.

"It wouldn't surprise us if Verizon decided to buy all of Vodafone to gain full ownership of Verizon Wireless. It could decide to become a global telecom leader or it could spin out parts of VOD that it's not interested in owning," wrote Einhorn.

Analysts see differently, with Citigroup's analysis indicating that the prospect of a full merger is remote at best.

"Verizon's management has made clear that it is not attracted by Vodafone's non-US assets and so while a top company merger remains a possibility we now see it as less likely than an exit by Vodafone from Verizon Wireless, possibly in stages. We also do not believe that it would be beneficial to execute a topco merger first as a route to then separating," Citigroup wrote.

All told, there may be some underappreciated risks for investors to what could be a record-sized deal.

The prospect that Vodafone sells its stake in Verizon Wireless may augur poorly for the unit's continued earnings and margin growth.

For Vodafone investors, the quick payoff from a Verizon Wireless sale, were a deal to be executed, could quickly fade given the company's less attractive non-US assets.

Peter W. Thonis, a spokesperson for Verizon declined to comment for this article. Jonathan Gasthalter, a spokesperson for Greenlight Capital, declined to comment.

-- Written by Antoine Gara in New York.

2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $124.75 0.00%
T $32.51 0.00%
VZ $48.90 0.00%
VOD $33.89 0.00%
FB $80.78 0.00%

Markets

DOW 17,826.30 -279.47 -1.54%
S&P 500 2,081.18 -23.81 -1.13%
NASDAQ 4,931.8150 -75.9760 -1.52%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs