Suffice it to say Verizon shareholders have pined for Vodafone to sell and get lost.
CIBC World Markets’s Tim Horan Friday writes in a note that Vodafone may finally be backing out — at least partially — as indicated by Verizon’s filing with the Securities & Exchange Commission Thursday its intent to sell up to $8 billion in preferred stock and debt.
Horan says he thinks the reason may be not just to pay off debt, as Verizon is suggesting, but also because Vodafone is at last ready to exercise its $10 billion put option to sell to Verizon some of its Verizon Wireless stake, which would reduce said stake from 45% to 38%.
Horan’s reasoning: Vodafone’s under pressure from its shareholders to sell its stake, and there is a cutoff this summer for Vodafone to exercise its right to sell per the terms under which Verizon Wireless was formed back in 2000. “We believe the [Verizon debt] filing could signal the expectation that Vodafone is likely to exercise its $10 billion put option on Verizon Wireless this summer, given that this is the last year Vodafone has this option,” writes Horan.
Horan says the bankers will have to determine the value of Vodafone’s holdings to arrive at a price for any deal, but that he believes Vodafone could get cashed out at an enterprise value-to-EBITDA multiple of 8x.
Horan thinks it would be a good thing for Verizon if it got greater control of Verizon wireless. Nonetheless, he rates Verizon shares Market Performer, arguing that there will be better opportunities to buy the stock at some point in future.