Please ensure Javascript is enabled for purposes of website accessibility

The Monster Merger Deal to Watch For

By Dan Radovsky - Apr 13, 2013 at 12:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Verizon wants to buy Vodafone's share of Verizon Wireless, but it may have to buy out its wireless partner -- for an astronomical sum.

There have been a number of huge merger deals in the not-too-distant past whose buyout numbers reached into low orbit. The most notorious -- and most scoffed at -- must be when AOL met Time Warner: $182 billion exchanged hands in 2000 before eventually vaporizing (most of it, anyway) along with the supposed synergies the transaction was supposed to generate.

But that was at right at the peak of the dot-com madness. No company would ever fall for that kind of hysterical dealmaking again, right? Maybe not. Never underestimate the appeal of financial madness, especially to those who should be minding the asylum.

The latest deal to end all deals -- by quite a lot -- is rumored to be brewing in the telecom world, this one between Verizon (VZ 0.28%) and Vodafone (VOD 4.44%), partners in the joint venture called Verizon Wireless. Oh, and one other company, which I'll get to later.

Verizon Wireless has been very good to the partners, and they have been able to split sizable profits from the deal over the past couple of years. Last year, Vodafone received $8 billion in dividend payments for its 45% share of the venture.

However, Verizon, which holds the other 55%, can choose to withhold those payments if it wants to use the money for acquisitions or capital expenditures. That makes Vodafone a bit nervous, especially as Verizon Wireless has been, as Australian hedge fund Bronte Capital's chief investment officer John Hempton wrote on his company's blog last month, the only bright spot over the last 10 years in Vodafone's "collection of modest success and abject failures."

So instead of thinking about shooting its golden goose, Hempton had another suggestion:

"Any deal where Vodafone sells its Verizon Wireless stake rather than selling itself ... would be insane, ... The best outcome would be the sale of the whole of Vodafone at a good price."

An astronomical price
And that price would be $245 billion, the enterprise value of Vodafone according to sources who spoke to the Financial Times earlier this month. And, still according to those unnamed sources, Barclays USA will put together a three-way deal which would divvy up Vodafone between Verizon and AT&T (T 1.67%). Verizon would assume full control of Verizon Wireless, and AT&T would acquire Vodafone's many overseas assets.

Verizon's interest should be obvious -- the whole slice of the pie -- but why would AT&T want to get a piece of Vodafone? That answer has to do with AT&T's being essentially blocked from acquiring much more of substance in the United States. The FCC's and Department of Justice's nixing of the company's bid to buy T-Mobile USA for $39 billion in 2011 has caused AT&T to look elsewhere for expansion.

Verizon isn't talking ... much. Ten days ago it filed an 8-K current report with the SEC to say this:

Verizon Communications ('Verizon') notes the recent press speculation regarding a potential merger with or purchase by Verizon of Vodafone. As Verizon has said many times, it would be a willing purchaser of the 45% stake that Vodafone holds in Verizon Wireless. It does not, however, currently have any intention to merge with or make an offer for Vodafone, whether alone or in conjunction with others.

And AT&T's not talking at all.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

AT&T Inc. Stock Quote
AT&T Inc.
$20.74 (1.67%) $0.34
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
$49.67 (0.28%) $0.14
Vodafone Group Plc Stock Quote
Vodafone Group Plc
$16.01 (4.44%) $0.68

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.