Vodafone: A Buy Based On Merger And Acquisition Speculation

| About: Vodafone Group (VOD)


Since selling its stake in Verizon Wireless VOD has become a rumored takeover target.

AT&T, China Mobile, and Softbank are all potential bidders.

VOD is currently the most valuable telecom takeover and is likely to receive at least one bid.

Shares of Vodafone (NASDAQ:VOD) have been moving higher on continued M&A rumors. VOD has become a takeover target after Verizon (NYSE:VZ) purchased the 45% stake in Verizon Wireless that VOD had owned. VOD returned most of the proceeds from its Verizon Wireless sale directly to shareholders via a special dividend and VZ share distribution. This transaction immediately put VOD in play as a potential takeover target for a two primary reasons. Most importantly, the distribution of proceeds from Verizon Wireless significantly reduced VOD's enterprise value making it a potential takeover target. Additionally, the most often rumored suitor, AT&T (NYSE:T), would not have been able to acquire VOD due to its stake in Verizon Wireless.

Potential Buyers


Since VOD announced its deal to sell its stake in Verizon Wireless, AT&T has been the most widely rumored bidder for VOD. The move makes a lot of sense given AT&T's desire to grow its scale and expand into Europe. However, when AT&T announced plans to acquire DirecTV (DTV) in a deal valued at close to $50 billion hopes of a deal between AT&T and VOD decreased. In January 2014, AT&T also made a statement saying that it has no plans to bid for Vodafone. Under UK law, this statement barred AT&T from making a bid for at least six months. Six months has since passed and AT&T could again, legally, pursue a bid for VOD. Rumors recently began circulating that AT&T is again interested in VOD. Despite its ongoing move to acquire DirecTV, I believe AT&T could, and should, still acquire VOD. VOD would offer AT&T increased scale and diversification.

China Mobile

China Mobile (NYSE:CHL) has long been rumored to be interested in acquiring a controlling interest in VOD. China Mobile has more than $70 billion of cash and its balance sheet which means that it is well positioned to make a move. However, if China Mobile makes a play for VOD I would expect it to be in the form of taking a large stake, 15-20% in the company. This outcome would likely be positive for VOD shares but not as significant of a positive as a bid for the whole company. If AT&T is interested in VOD, I do not see China Mobile being able to make an offer that would top AT&T's offer. However, anything is possible.


Japan's Softbank (OTCPK:SFTBF) has also been rumored to be interested in VOD. Softbank had been pushing for a merger between Sprint (NYSE:S)and T-Mobile (NASDAQ:TMUS). With that deal now off the table, Softbank is likely exploring all options including VOD. The upcoming Alibaba IPO could give Softbank the opportunity to sell shares or borrow a significant amount of money against its stake to help finance a bid for VOD. While I believe Softbank is less likely to make a play for VOD than China Mobile or AT&T, a Softbank move is certainly possible. The primary reason why I believe a bid is unlikely is that Softbank would seem to be better suited to acquire Yahoo.


In my opinion, VOD is by far and away the most valuable telecom asset currently in play for M&A. Due to the current financing environment, a deal for VOD is very much possible right now. I believe AT&T is most likely to make a bid for VOD but China Mobile and Softbank could also be interested. The amount of interest in VOD also suggest a bidding war is possible which could lead to significant upside for VOD shares.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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