Canadian carriers rally following Vodafone/Verizon news

|By:, SA News Editor

Rogers (RCI +2.8%), BCE (BCE +1.9%), and Telus (TU +2.8%) are all posting solid gains after Bloomberg reported Verizon is in advanced talks to buy Vodafone's 45% Verizon Wireless stake for $130B and plans to partly finance the deal by raising $60B in debt, and Vodafone subsequently confirmed it's talking to Big Red.

Investors are betting the deal's enormous price tag will make Verizon (VZ +3.4%) hold off on its Canadian expansion plans for now. Verizon already had $49.8B in debt on its balance sheet at the end of Q2, offset only a little by $5.7B in cash/investments.

The Globe and Mail recently reported Verizon has decided to hold off on making bids for smaller Canadian carriers until a January spectrum auction concludes.

Meanwhile, Nomura believes even a $130B deal for Vodafone's stake would be accretive for Verizon, since it would still only value Verizon Wireless at 8.5x 2013E EBITDA. The firm thinks Verizon would trade at 7x 2014E EBITDA and 2.3x net debt/EBITDA (a ratio deemed "manageable") following a $130B deal half-paid in cash.

Judging by today's move in Verizon shares, investors also think the positives outweigh the negatives. Is Verizon getting a good deal on a premium asset - while Verizon's wireline revenue continues to slowly decline, Verizon Wireless is still growing and gaining share - or is Vodafone smartly selling high as U.S. mobile growth slows and competition intensifies?