After years of speculation among analysts and jaw-boning between Verizon and Vodafone about the ownership structure of Verizon Wireless, it appears a deal may finally be in the works.
In the near-term, a deal could provide a lift to Verizon's stalled share price. Citigroup analysts said, in March, that a stake acquisition would also look financially attractive at virtually any price, given near-historic low corporate bond yields.
Verizon's earnings per share and free cash flow could grow by 27% and 18%, respectively, in the first year after a deal is completed, Citigroup analysts Michael Rollins and Simon Weeden noted in a March 19 report that revived speculation of a deal between Verizon and Vodafone.
For Vodafone, selling its stake in Verizon Wireless could improve the company's valuation multiples by between 17% and 46%, given the prospect of a deal price between $105 billion and $135 billion, the analysts said. In June, Vodafone said it would buy Kabel Deutschland in a $10 billion deal that expands the company's wireline business in Europe's core economies.Even at high valuation multiples, both parties appear open to a deal given low interest rates, favorable Verizon Wireless performance and moderate debt leverage at Verizon, the analysts added. Vodafone may see Verizon Wireless's current strong performance as a smart time for the firm to sell its minority stake. Speculation about a deal reignited in October 2012 when Bernstein Research analysts, led by telecom sector bear Craig Moffett, noted pricing for Vodafone's Verizon Wireless stake may never be better. "With Verizon trading at all time high multiples; US investors appearing to suspend disbelief on the impending deterioration of the US wireless market; and an urgent need for major strategic change in Europe, there may never be a better time for Vodafone to relinquish its 45% of Verizon Wireless," noted Bernstein Research in an Oct. 24 research report.
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