Template Tools
Verizon-Vodafone: Who Buys Whom
Wednesday, 08 September 2010 00:44
Vodafone sold its holding in China Mobile for $6B. Press are speculating ivanthey might use the money to buy Verizon out of Verizon Wireless or Vivendi out of SFR, France's #2 mobile. Vodafone today has a $128B market cap and about $60B debt; Verizon $85B with $40B debt and $40B+ in deferred taxes, etc; Vivendi $23B with $15B debt.
    The raw numbers point to Vodafone as the surviving entity. Both Verizon and Vivendi assert if any deals go down they are buyers, not sellers. But both are struggling to cover their dividend with earnings. Verizon just cut wireline capex 24%. Vodafone is rumored to be searching for a new Chairman.
     In March, I wrote (below) that Ivan is getting closer to retirement every day. With a standard employment contract he would probably be tens of millions richer if he sold the company before he leaves. A few days after I reported that, Ivan said no way was he selling.
    Verizon is holding back on almost everything major except the LTE build while they decide who will succeed Ivan. Lowell McAdam from wireless is the outsiders pick, with CFO John Killian also in the game.
Killian is a money man and presumably would welcome the right bid. McAdam may be more prideful, but he's been on top of the game long enough he might be willing to sell.
  Everything is rumor and speculation unless you're in the boardroom.
Ivan Seidenberg: Many $millions to finish the Verizon-Vodafone deal
Written by Dave Burstein

ivanUpdate 4/7 Ivan at CFR says no merger likely. He usually speaks truth. Prev: Ivan Seidenberg has tens of millions of reasons to sell Verizon to Vodafone before he retires in a year or two. Vittorio Calao also wants to strike a deal in the next few months. Needing to keep short term numbers high to raise the deal price explains Verizon recent moves: firing 8,000 more people than originally intended, canceling 5M planned lines of FiOS and reaching an entente with cable to both raise prices.

Calao is an ex-Morgan banker who will drive a tough bargain. Craig Moffett notes that Verizon has a problem the current dividend, which in 2009 was substantially higher than earnings. He thinks Voda has a trump card in Verizon's need to pull cash out of the 45% Vodafone owned Verizon Wireless if they don't want to cut the dividend, although cutting capex could put that off several years.

Mike McCormack of JP Morgan sees it differently. "

If Verizon sold its 55% ownership of Verizon Wireless, the company would be divesting its fastest growing business, rendering the company a cash rich, wireline-only provider banking on further broadband growth. We see a full merger as unlikely given technical, transactional, and regulatory complexity."

Given that U.S. investors control the cable company in Britain, it would be wildly hypocritical for the U.S. to block a British company buying Verizon. Which doesn't mean it wouldn't play out that way.

The Italian born, London living Calao has no emotional tie to Verizon's operations in the U.S. and would almost certainly milk the U.S. for cash to invest in Africa and India. Vodafone is already doing that in Europe, telling investors they are moving capital to "areas with more growth potential."

I haven't checked the terms of Ivan's employment contract or made a guess at whether he would get a generous bonus for concluding the deal from his hand-picked board. But he's sure to come out very far ahead, either directly or through the rise in the stock price if Voda takes over. He'll have a hard time matching Ed Whitacre's last years at AT&T however. Ed made $100M in a single year on his options.

 

Vodafone recap:

Sales $60B

Profits $4.6B

Net Debt $55B

Market cap $115B

EV $170B

Employees 80,000

 

Verizon  recap:

Sales $108B

Profits $3.6B

Net Debt $55B

Market cap $86B

EV $140B

Employees 222,000

 
Last Updated on Wednesday, 08 September 2010 01:22