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Verizon Vodafone Deal, Don't Get Too Excited

NEW YORK ( TheStreet) -- Don't get too excited about the prospect of Verizon (VZ - Get Report) taking full control of its Verizon Wireless joint venture with Vodafone (VOD), in a deal that could reach in excess of $100 billion.

While Verizon has hired advisors to pursue a deal for Vodafone's 45% stake in Verizon Wireless, according to a Reuters report, the prospect of a buyout has already helped to drive both company's shares for much of 2013, amid rampant speculation and public statements.

Verizon Communications Inc was gaining 1.9% to $52.75 while Vodafone shares were rising 2.5% to $30.33.

Full control of Verizon Wireless would allow Verizon to retain the venture's impressive and rising cash flow.

["We've] always said before, we're very interested in acquiring the 45% stake in Verizon Wireless that we don't already own," Francis J. Shammo, Verizon CFO, said during the company's first quarter earnings call.

"I will say though that there has been a lot of speculation about the tax consequences of a purchase of this 45%. And we are extremely confident that such a transaction could be accomplished in a manner that is very tax efficient and would not result in a tax on the gain in that stake."

Were a deal to be executed on friendly or even hostile terms, as the Reuters report indicates is possible, the overall price tag for Vodafone's 45% Verizon Wireless stake would make it among the biggest acquisitions of all-time.

For investors in the consolidating U.S. wireless market, however, the possible $100 billion-plus deal may come in third in importance to the other mega-mergers in the space.

Currently, T-Mobile USA is wrapping up its merger with MetroPCS (PCS) as the company makes an aggressive push to win back Apple (AAPL - Get Report) iPhone-addicted smartphone customers from Verizon and AT&T (T - Get Report).

Meanwhile, Sprint (S), the U.S. wireless industry's third leading player, is currently the subject of a takeover battle between satellite TV provider Dish Network (DISH) and Japanese telecom SoftBank.

It is T-Mobile and Sprint's consolidation efforts, along with Leap Wireless (LEAP) and Clearwire (CLWR), which are drawing the interest of smart money hedge fund investors as big as Paulson & Co. .

David Einhorn-run Greenlight Capital is one of the few hedge fund investors betting on Vodafone's sale of Verizon Wireless. Still, Verizon has dismissed Greenlight's recommendation in an investor letter it buy all of Vodadfone.

How T-Mobile and Sprint's consolidation efforts work out will be a far more important story for the telecom sector than Verizon's possible acquisition of all of Verizon Wireless. In fact, those deals may even prove more impactful to Verizon's earnings, since the consolidation of Verzon's competitors would increase their financial strength and efficiency, possibly pressuring margins.

In the first quarter of 2013, Verizon's wireless profit margin surged to a record 50.4%, fulfilling a forecast made by the company it would achieve such profitability by year-end.

Reuters' report that Verizon has hired advisors to look into a friendly, or even hostile stake buyout may be a more important issue for fee-hungry Wall Street bankers. According to the report, Verizon is willing to finance up to $50 billion to cut a deal, while financing the remaining piece of a transaction with its stock.

Such prospective stock and bond issuances would be a fee bonanza for Wall Street bankers winning the mandate.

Ultimately, the deal will have little ramifications for consumers or the financial performance of the wireless industry, given Verizon already holds a controlling 55% stake in Verizon Wireless.

Peter J. Thonis, a Verizon spokesperson, declined to comment.
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