Vodafone (NASDAQ:VOD), the world's second largest mobile operator, has been at the centre of much speculation in recent months with regards to its ownership of its 45 percent stake in U.S. mobile operator Verizon Wireless.
Commentators have suggested that Vodafone could sell its stake to joint venture partner Verizon Communications (NYSE:VZ), or sell itself to the U.S. group to avoid a costly tax bill. A third scenario has now emerged that would enable AT&T (NYSE:T) to enter the European market, while Verizon would secure the rest of Verizon Wireless.
Break-up bid for Vodafone?
Verizon Communications and AT&T have reportedly been working on a $245bn breakup bid for Vodafone whereby Verizon would buy Vodafone's 45 per cent stake in their Verizon Wireless joint venture and AT&T would obtain Vodafone's non U.S. assets.
"Usually reliable people" have told the FT that Verizon and AT&T would offer $3.95 (260 pence) a share in what would be the biggest takeover in history.
According to the FT a three-way deal would benefit all:
"For Vodafone, a takeover would achieve a premium for its Verizon Wireless stake without having to leak around $20bn in tax (or suffer the bad publicity of trying to avoid it)".
"For Verizon, bidding would clean up its structure without getting embroiled in the fights about leadership and domicile that were said to have stalled Vodafone merger talks in December".
"AT&T, meanwhile, would fulfill the long-stated ambition of expanding in Europe. Splitting the takeover premium would also make a deal much more palatable both for shareholders and debt ratings agencies."
At a mooted exit price of $3.95 (260 pence) per share we would be voting against the deal.
While we would be making a "great" return, having purchased Vodafone shares when they were historically undervalued in 2006, at $1.78 (117 pence), a possible bid of $3.95 (260 pence) per share is still below our current historically overvalued levels for Vodafone shares as per our proprietary developed yield/value valuation methodology for high quality dividend paying shares.
Disclosure: I am long VOD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. I am long VOD. We run the Dividend Income Portfolio, which owns a shareholding in Vodafone Plc, purchased when the share was historically undervalued as per our valuation methodology.