The investment world was informed last Saturday that Verizon would be buying out the 45% stake of the Vodaphone- Verizon Wireless partnership which was owned by Vodaphone at a price tag of approximately 130 billion dollars. The rationale for doing the deal now is that bond yields are now rising, so it would be more expensive to do the deal later next year. In addition, both parties had an incentive to end the partnership now so they could pursue their strategic interests unencumbered by the other side. For Verizon, they now have total control of Verizon Wireless, an entity which is the largest of it's kind in the U.S. and generates annual cash flow of nearly $30 billion. The figure is certainly enough to pay down very quickly whatever debt is used to fund the purchase of the Vodaphone stake.
For Vodaphone shareholders, they will receive a nice cash award- nearly 5 dollars per share, as well as Verizon shares. Vodaphone now will have a big war chest to put to use in Europe and Africa in the pursuit of better growth. It remains to be seen how they will use the capital. Some believe they will look to cable assets, while others maintain the telecom area in Europe and Africa is the priority. We will soon find out. In Europe, the deal provides a tremendous boost to many shareholders of Vodaphone as they can use the cash, and many will ultimately wind up selling the Verizon shares early in 2014, when it is expected the deal will close.
The acquisition is one of the largest corporate transactions to ever take place. More importantly, it may set off a wave of consolidation in the global telecommunications, media, and technology industries. Given the massive scale of many of these companies, like AT&T, Yahoo, Verizon, Google, Apple, Vodaphone, Amazon.com, Comcast, Time Warner Cable, Cox, Liberty Media and Liberty Global, it would not be surprising to see large 50-100 billion dollar deals continue. If so, the investment bankers will be kept busy for quite some time.
The more I read about the lawsuits which get filed on behalf of disgruntled shareholders the more I get disgusted with the legal system we have in the United States. Over the last two weeks, a shareholder filed a suit against the Verizon board claiming the Vodaphone transaction was not in shareholders best interest. John Malone and the Sirius Satellite board was in court defending itself from a similar suit from Sirius shareholders, who were rescued by Malone and Liberty Media when the stock was at 16 cents. It is now at $3.50, and if Malone did not extend them a $530 million dollar bridge loan, the shareholders would have been wiped out by their other alternative at the time, Charlie Ergan from Echostar, who would have put them in bankruptcy. The shareholder contention is they did not get a takeover premium from Malone and the board at Sirius did not do its required job.
The next legal situation which gets more interesting by the day is with BP, where the company agreed to a settlement on specific terms, and now the basis of those agreements are being misinterpreted by a new claims administrator. The new person responsible has staff members who have been found to have a financial interest in the claims of clients who were represented by law firms the staff members had a ownership stake in (the sum is 9 million just for one law firm). If we add to these situations the time consuming nature of almost any part of our legal system, the documentation and time costs required by nearly any settlement, not to mention the emotional grief people go through on nearly any case, the country needs to completely revamp the legal system. Yes, I know, the lawyers will hate me. They already do. Big wet kiss to the lawyers, they need it.
U.S. involvement in Syria certainly looks like it is not a popular decision in the country, nor around the globe. As of this writing, it is doubtful at best the House of Representatives will vote to support some kind of military action against Syria. President Obama will address the country on the issue tomorrow evening. The potential ramifications of a military strike are enormous. Russia is heavily invested in Syria, and as China is now increasingly dependent on Russia for oil supplies, both have blocked any attempt by the U.S. to get United Nations support for an intervention in Syria. If weapons are used against Syria, retaliation against Israel, the United States, Europe, or all is certainly possible, not just by Syria, but by Iran, Russia, and their assorted proxies. To say this is a complex situation is mild at best. The important question to consider regarding U.S. leadership (from behind?) is after two years of doing nothing about the civil war in Syria, now the United States wants to step in because chemical weapons are being used. You have to wonder what we have been doing the last two years, don't you?
Finally, the equity markets have continued their uptrend on better economic results from different countries in Europe and China. In addition, the August jobs report turned out to be weaker than expected, so many believe a September tapering is not in the cards. The month of September is historically the worst of the year, but I have found it typically turns out to be nearly not as bad as people fear. It is also the five year anniversary of the Lehman Brothers bankruptcy and global sell off. At the time it was painful, but for those who took advantage, as of this moment, it might have been the greatest buying opportunity we will ever see in our life. Time will tell.
Thanks for reading the blog, and I hope you have a great rest of the week. Please post any comments, thoughts or questions you might have!!!!
Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.