Vodafone -1.5% AH on Goldman downgrade


Citing lower acquisition odds, Goldman has downgraded Vodafone (VOD) to Neutral.

The downgrade comes amid widespread reports AT&T is closing in on a deal to acquire DirecTV, a move that (provided regulators sign off) would make it quite unlikely Ma Bell would bid for Vodafone.

Yesterday: AT&T, Vodafone slide following DirecTV reports

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Comments (20)
  • piano man
    , contributor
    Comments (70) | Send Message
     
    Smokescreen
    14 May 2014, 08:49 PM Reply Like
  • Veritas1010
    , contributor
    Comments (3193) | Send Message
     
    VOD is still a keeper. AT&T may have gotten into bed with the wrong partner - at least a older one for sure.

     

    VOD's strategy is still sound, its global footprint solid. It will take some time to recover from its divorce from VZ. But, like most amicable separations all will be fine at the end of the day.

     

    disc.: long VOD, a solid investment in global growth and communications.
    14 May 2014, 08:52 PM Reply Like
  • King Rat
    , contributor
    Comments (1619) | Send Message
     
    I don't see it as VOD and VZ getting divorced. More like VZ maturing and leaving the nest. Still, VOD got the better of that deal, balance sheet wise. VOD divested of assets in a mature market and can reinvest the proceeds in young markets that need nurturing and have more growth.
    If VOD uses the money right, VOD can fund 5 new VZs.
    14 May 2014, 11:37 PM Reply Like
  • Just Some Guy
    , contributor
    Comments (2394) | Send Message
     
    I think it was a fair deal on both sides, VOD got a wad of cash - but that's a problem in today's world which ironically is cash-rich, the trick is to make it earn income. I don't know about funding another VZ, it's not like VOD funded the first one either. VOD seems well-managed, at least T is apparently following the same kind of strategy.

     

    Long VOD and T.
    14 May 2014, 11:40 PM Reply Like
  • King Rat
    , contributor
    Comments (1619) | Send Message
     
    Good point on not funding VZ. I was thinking more along the lines of investing in non-saturated markets and exiting saturated markets, just as VOD did in Japan before divesting VZ.

     

    VZ did not get a bad deal, considering the cost of both equity and debt would likely have been higher had they waited another few years to buy their independence. Yet VOD got a load of cash and as you say, VOD seems well-managed. That combination spells opportunity.

     

    I am not long any telecoms now, but if I were to go long, it would be VOD and T, just as you're doing. I wouldn't be surprised if VOD would like more expansion in emerging markets but is waiting for a better time. The one thing a load of cash gives you is ability to be patient and protection from (missed) opportunity costs.
    15 May 2014, 02:05 AM Reply Like
  • Mikie713
    , contributor
    Comments (555) | Send Message
     
    I guess the market and investors in general are happy about the $T $DTV merge/buyout. I see it as a headscratcher. People are cord cutting left and right and $DTV has matured to the point of where it may have maxed out its potential. On the other hand, $VOD is breaking into emerging markets with loads of room to roam. Why did $T turn away from them? My guess is this is just easier. It appears to me to be lazy. Sure it'll probably work for both, but for the consumer? What will they get out of this?
    15 May 2014, 12:28 AM Reply Like
  • ads7w6
    , contributor
    Comments (44) | Send Message
     
    I don't believe that $T isn't still looking at a merger/purchase of $VOD. Instead I think that they are trying to throw everyone off and get the price of $VOD to come down so that they can pick them up on the cheap. I have no evidence to back this up, just my thoughts on the situation.
    15 May 2014, 09:34 AM Reply Like
  • Veritas1010
    , contributor
    Comments (3193) | Send Message
     
    Respectfully, T doesn't have the $$$ to finance both deals. VOD take-over is over.
    15 May 2014, 01:31 PM Reply Like
  • 15865932
    , contributor
    Comments (441) | Send Message
     
    Mikie and ads7w6, I have a resident VOD smack talking trader on Yahoo message board that posted an interesting note with an attempt to cause Fear, Uncertainty, and Doubt (FUD). Something caught my attention which made me think you are correct ads7w6. Sorry for the length but here is the FUD:

     

    <<<Foolish Fiber Babble Rivals The Absurdity Of M-Pesa Pumping.
    Article in The Star--"M-Pesa's server shift will reduce Vodafone charges".

     

    Excerpt--"Vodafone, the UK company that holds a majority stake in Safaricom at 40%, will be the biggest loser in terms of fees when the Kenyan telco fully hosts its platform locally in under 12 months.">>>

     

    This article discusses servers being built in Kenya and remote service being removed from VOD Europe locations to their 40% company Safaricom. So my response:

     

    <<<Counter volley with a chuckle. "Vodafone at risk of losing Safaricom in AT&T potential buyout" #Study http://bit.ly/1nSZ23M

     

    Hmmmm Vodafone owns 40% of Safaricom. Server shift to Kenya makes costs and income of hardware shift to Safaricom stake and creates an asset that is fairly arms length from Vodafone and here is the kicker in your pants. This allows for a full separation sale of Africa assets to someone like Orange. ;-) Maybe VOD consortium bid rumor is for real - VOD getting positioned to break up the parts soon? :-) Think T would be nuts not to keep the whole ball of wax but emerging markets may truly not be Stephenson's flavor of ice cream.

     

    Even if this isn't the case, 40% ownership in Safaricom likely means VOD had to give a positive nod of some sort given it is a M-Pesa planned migration of customers. Maybe a lot of resources at VOD HQ needed to be redirected for the blossoming launch of SmartPass in EU in partnership with Visa. VOD was likely a driver of this move no matter the case. Given they will only have a 40% share in that net income now I would say this makes this move lean towards a possible breakup sale coming. "fully hosts its platform in under 12 months"...... Look at the big picture instead of your absurd babble trying to create FUD.>>>

     

    For reminders sake just from November. Total deal could reach $175B USD, China Mobile, America Movil, and Orange would buy up local Vodafone units
    http://bit.ly/1nSZ3ok

     

    Little logic and the great majority of the analyst field baffled at the DTV RUMOR. Even Charlie Ergen stated a DTV deal won't get T what they need for the direction of communications. Charlie has admitted the long term trend towards streaming leaves DISH needing to do something very aggressive. Also announced Web based TV service in last week which would be, IMO, an attempt to stay relative as a bundler although the pipeline of the future is fiber based internet.
    15 May 2014, 01:36 PM Reply Like
  • 15865932
    , contributor
    Comments (441) | Send Message
     
    Veritas, the fat lady isn't singing until someone formally announces a deal and if such occurs, what terms are announced. Even if a deal is announced, IF IF IF it is all stock with little to no premium, then it has little bearing on VOD/T implications other than increased cash flow. The devil is in the details. If there is significant premium or even modest purchase price debt financed (cash instead of stock) then VOD potential deal is dead and T just bought a dinosaur technology bound to a future of being pillaged by fiber. The devil is in the details IF these rumors turn out to be true. It isn't the first time this proposal has been thrown on the dance floor.

     

    If there is anything beyond a very minor cash portion to the DTV purchase then T shareholders should begin calling for Stephenson's resignation. They will have a verified Ken Lewis/BAC CEO on their hands. Countrywide comes to mind.
    15 May 2014, 04:12 PM Reply Like
  • Mikie713
    , contributor
    Comments (555) | Send Message
     
    15865932, thanks for the invite, I may wander over. I too think this $T/$DTV deal might be a shadow play. Lots of smoke and mirrors.
    15 May 2014, 01:57 PM Reply Like
  • Veritas1010
    , contributor
    Comments (3193) | Send Message
     
    Gentleman, interesting conjecture.

     

    Again, a lot of pretty savvy people on SA think this is a positive. Once more, I'm not convinced this is the best application of T's money. I personally can't see $100 a share for Direct TV to buy 'x' amount of customer which you cannot necessarily migrate seamlessly to your array of higher end services or products. Buying a company already in South America or better still an alliance wouldhave been more rational than embracing older technology - just when Google may be ready to challenge T in speed nationally - with technology that actually delivers to the end user Giga-power not just to nodes...

     

    Mr. Stevenson does not have a stellar record in anticipating regulatory approval either. Look, I'm long on T. I'm watching closely and have sold profitably before and repurchased when SBC morphed into T. Again, saw more growth in a VOD acquisition potentially.

     

    Another SA author stated it looks like T just wanted to show it could stay relevant and merge with something, as crazy as it sounds its just difficult to see the wisdom in this decision.
    16 May 2014, 06:07 PM Reply Like
  • 15865932
    , contributor
    Comments (441) | Send Message
     
    There were a lot of savvy people high on an AOL/Timer Warner deal that kept touting cross selling of products made sense (bundling) and that turned out to be a $100B mistake. It doesn't make sense when T market for land line doesn't span the entire DTV market at roughly 25%. Those other land line providers will have the spoils of eating at satellite revenues with the onset of cheaper fiber deployment - T won't be alone as it cannibalizes DTV/satellite revenues in the future.

     

    Two scenarios here Veritas. 1) If it is an all stock or nearly all stock purchase of DTV then this could be a pure financial engineering move by T for a pending VOD move. If T is lacking sufficient summary cash flow to float a strong bid for VOD then T will be gaining the free cash flow from DTV at the hands of stock issuance. Some have stated such a deal for DTV might to be secure the dividend but that is short sighted given the long term trend to streaming video as indicated by DISH's Ergen. Could this be a short term fix to structure enough existing cash flow (without new debt) to in turn float a bid for VOD? The group on Bloomberg the other day agreed that the only logic for this deal is financial engineering and not strategic....but this could be strategic financial engineering to position for a bigger M&A bite. It will be all about DTV sale structure.
    2)GOOG was mentioned by you and I have wondered if Page and Brin aren't positioning for something pretty big soon given they created a split class that gives them super voting rights just like the Ford family enjoys while owning a pretty small portion of a full market cap. GOOG has ventured into so many different fields it would be a fool's game to guess what they are up to/reasoning behind the split class move but..... VOD comes to mind as a possibility given GOOG has a virtual wallet and they have been moving into fiber. Look at GOOG market cap vs. VOD. GOOG could swallow VOD whole in a flash while T would struggle to swallow VOD whole given existing market caps.

     

    Time will tell on #5.
    http://bit.ly/1jsFpQT
    Who has huge emerging market exposure and very large underserved populations within Indian and Africa markets? ADMITTEDLY very, very speculative but never say never.
    18 May 2014, 03:20 PM Reply Like
  • Veritas1010
    , contributor
    Comments (3193) | Send Message
     
    Again, impressive and deep analysis and reasonable conjecture.

     

    Thank you.
    19 May 2014, 10:00 PM Reply Like
  • Mikie713
    , contributor
    Comments (555) | Send Message
     
    Another SA author stated it looks like T just wanted to show it could stay relevant and merge with something, as crazy as it sounds its just difficult to see the wisdom in this decision.

     

    Seriously, like pre-banned Sterling's bevy of girlfriends at a Clippers game.
    18 May 2014, 07:22 PM Reply Like
  • 15865932
    , contributor
    Comments (441) | Send Message
     
    Mikie,
    Check the purchase structuring. The DTV announcement came with a notice T would divest of AMX holding which was +9% until a recent ~1% drop. Roughly $7B in cash from total AMX sale. T also had "non-core" asset sales of $2B to Frontier for Connecticut wire assets as well as T selling wireless towers to Crown Castle for $4.85B in recent months. Total is just shy of $14B. Cash portion requirement of DTV purchase? $28.50/share on 503.8 million shares outstanding =$14.36B. If you are reading between the lines, T just picked up all of DTV's existing Free Cash Flow with little or no new debt service.

     

    IF you understand how LBO financing works, you should have already realized all the FCF from DTV purchase increases by multiples the amount T will now have in its gun to go hunting VOD. DTV is the means for T to go elephant hunting with a bigger gun. This deal is a strategic financial engineering move. The devil is usually in the details and the AMX divesture was key.

     

    T is relevant as it builds out fiber/G.fast in the future. Satellite is not a relevant proposition going forward but it does provide immediate FCF increase to cover/service debt in a Vodafone LBO. Pure speculation on my part but this is the only reason I could come up with for a T move into a fading technology. Taking one step back to allow three steps forward kind of deal.
    19 May 2014, 01:00 AM Reply Like
  • Veritas1010
    , contributor
    Comments (3193) | Send Message
     
    So, is this a $35.00 stock or a $50.00 stock in 3 years?
    19 May 2014, 10:04 PM Reply Like
  • 15865932
    , contributor
    Comments (441) | Send Message
     
    $50 or better but a portion of potential depends on India banging the walls hard. That market has low cell phone penetration. I'm not talking smart phone, I'm talking cell phone. They just shut down the telegram service last year in India. VOD also just completed rollout of M-Pesa across India. India history lesson for VOD is key for those unaware. If you aren't aware, VOD has been in a major tax fight with India tax assessors and the ruling party. VOD recently put an acquisition approach on hold that would have pushed them from #2 provider into the #1 slot until matters are resolved and investment environment improves. The ruling gov't even wrote new legislation and made it retrospective after losing to VOD in India's high court. Very recent news of a "seismic shift" in political power puts a reported business friendly party into power.
    http://nyr.kr/RQvfxi
    A couple pieces stated this VOD dispute will be resolved swiftly with a new ruling party but who knows....

     

    Some have said +$50 within a year. If EU economy gains some steam, which is now coming very slowly out of a 2.5 year long recession, $50 is well within reason. Draghi doing some form of EU stimulus in June http://bloom.bg/RQvfxj may have a similar effect on the EU equity markets as the Federal Reserve launching a round of QE on the U.S. stock market. Then you also must factor in currency trade for £/$ given the ADR status. One analyst a few months back predicted a return to 1.80s by year end. U.K. is getting rapid drops in unemployment, PMI at five year high, and many signs pointing to an overheated housing sector which all add mounting pressure for BOE to raise interest rates.

     

    This all goes without saying the reverse split cut the market cap roughly in half although VOD kept some of the sale proceeds which is being placed into profitable acquisitions. *Also note the mobile banking positioning being put in place now in all of VOD's markets adding to bottom line.
    19 May 2014, 11:55 PM Reply Like
  • Mikie713
    , contributor
    Comments (555) | Send Message
     
    Interesting tea leaves,15865932. Now THAT would make sense to me, because $T moving into a "fading technology" doesn't. And you're the only one smart enough to see it. But do you really think $T CEO is that savvy?
    19 May 2014, 01:18 AM Reply Like
  • 15865932
    , contributor
    Comments (441) | Send Message
     
    Mikie,

     

    Don't forget they have been eyeing VOD for likely 18 months or better. I recall one media piece at the start of this year that reported T had begun the process of lining up financing for a VOD bid (just a couple weeks before the U.K. takeover panel put them in a disclosure pickle). You have a very, very sharp bunch of investment bankers trying to put together a deal. They get paid to put deals together. They are very, very savvy when trying to make the financing structure of a deal work. This isn't just $T CEO. He may have picked the ultimate target but the investment bankers working with a CFO are the ones who find a way to make it happen financially.
    19 May 2014, 10:48 AM Reply Like
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