Vodafone/Verizon: Why there’s no smoke without fire…

09 May 2013 | Richard Irving

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Richard Irving

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How curious, that after a three-year hiatus, the rumour mill surrounding Vodafone and Verizon is once again in overdrive. Recent reports trickling out of the US have suggested that Verizon is beauty-parading bankers and lawyers for what could eventually be the biggest acquisition in telecoms history.

How curious, that after a three-year hiatus, the rumour mill surrounding Vodafone and Verizon is once again in overdrive. Recent reports trickling out of the US have suggested that Verizon is beauty-parading bankers and lawyers for what could eventually be the biggest acquisition in telecoms history.

In the UK, meanwhile, a clutch of top institutional shareholders have already given warning that Verizon will need to pay considerably more for Vodafone’s 45% stake in their wireless joint venture than the much-mooted $100 billion supposedly on the table.

The last time a deal between the two groups was mooted seriously was back in 2004 when Vodafone was stalking AT&T. Since 2010, the two companies have been mostly tight-lipped about unwinding the venture.

So why, one might ask, are tongues wagging with such a vengeance now? A new report from the London-based Cass Business School might offer some clues: in a comprehensive survey of 4,000 deals since 2004, researchers found that leaking details of potential acquisitions helped to inflate the eventual take-out price by an average of 53%.

It is not illegal to leak details of talks to the press, although stock market regulators don’t particularly like it and they can come down heavily if they deem gossip-mongers to be willfully engaging in any form of so-called “market abuse”.

Vodafone can hardly expect to fetch $153 billion for its minority stake in Verizon Wireless. But now that several of its own institutional shareholders have already effectively “rejected” $100 billion – though let’s not forget that no formal offer has yet been penned – it might feel like trying to get pretty close.

It’s bankers certainly won’t be complaining – the “free market” has effectively put a floor under the stake of $100 billion – every $1 billion the price ratchets up from now will generate an extra $30 million in fees, assuming normal structures apply.