Filed under: Forecasts, Deals, Industry, AT and T (T), Verizon Communications (VZ)
Verizon (NYSE: VZ) is making a fairly concerted effort to get Vodafone (NYSE: VOD) out of its equity position in Verizon Wireless. The question is, why would Vodafone get out? Verizon Wireless makes a lot of money.
According to the FT, the head of Verizon, Ivan Seidenberg said, “Would I like to have 100 per cent of the earnings given we’re doing 100 per cent of the work? Yeah, I would.”
Verizon Wireless does not pay dividends to Vodafone, so it does not get much of a cash benefit from its piece of the pie, but the FT points out that the British company’s stake is worth about $60 billion.
Reflecting on the debate, it would probably be in the ideal interests of Vodafone shareholders to sell out to Verizon. Their benefits of ownership are limited. Vodafone could use the cash for expansion in Europe, Asia, and the Middle East.
Perhaps the greatest reason for Vodafone to make a graceful exit is the US market itself. Growth of wireless subscribers is slowing as the market reaches a point of saturation. Competition is tough, especially with AT&T (NYSE: T) having about the same number of subscribers as Verizon Wireless. A price war could take down margins at both companies.
Vodafone’s stake may never be worth more than it is now.
Douglas A. McIntyre is an editor at 247wallst.com.
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