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| Wednesday, 18 July 2007 | |
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Vodafone is under pressure from shareholders to resolve its participation in Verizon Wireless. In turn this is threatening to derail the course of its latest strategy for global growth. The alternative courses of action are all flawed or fraught with difficulty, but the option of inaction is losing support.
We have been here before in a more charming, less damaged age. Nearly a decade ago, Vodafone paid US$59bn for AirTouch of the US in a move that gave it access to countless European markets and a foothold in North America. Arguably this deal cemented its global ambitions. This led directly to the merger with Verizon which effectively placed five major US licenced wireless operators in the same camp as the world’s then largest and most diversified mobile operator. In the US, it effectively bought into an agglomeration of the separate regional cellular operations formerly owned by PacTel, US West, Bell Atlantic, NYNEX and GTE. That transaction, valued at US$70bn, gave Vodafone 45% of Verizon Wireless Enough history. Fast forward to 2007. Since its inception in 2000, the ultimate ownership of Verizon Wireless has been a sticking point between Vodafone and Verizon. This may at last be coming to a head. Consider the following: • Verizon would love to get rid of Vodafone but is reluctant, for the time being, to pay a premium for 100% ownership; • Vodafone would love to get rid of Verizon but now senses at corporate, regulatory and tax hurdles render this impossible; • Vodafone could exercise put options on a further stake in either Verizon Wireless or parent Verizon Communications to tilt the strategic balance in the UK-based company’s favour. This unlikely scenario, which carries a price tag of up to US$200bn (both Verizon and Vodafone have market caps of around US$125-150bn, plus debt), would see Vodafone spin off or sell Verizon’s fixed line assets. • Vodafone could be forced by shareholder revolt to accept terms from Verizon over selling its 45% stake. It’s hard for Vodafone to resist this argument in that its stated strategic ambition is to sell out of minority stakes in mature markets in favour of emerging market opportunities. A Vodafone AGM later this month may bring these dilemmas further out into the open… but don’t expect an early solution to emerge. Both Verizon and Vodafone recognise that which each tick of the corporate clock of confrontation, the values of their respective stakes continue to rise. Jim Chalmers |
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