The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

Pressure is building on Vodafone to make a U.S. exit. The latest in a string of deal stories says partner Verizon Communications has hired advisers for a potential buyout of the duo’s mobile joint venture, Verizon Wireless.

The accompanying $100 billion price tag sounds low – UBS, for example, reckons Vodafone’s 45 percent stake in Verizon Wireless is worth 8 times EBITDA, or about $120 billion. But the report has lifted shares in the UK mobile operator again. The stock is now up about 17 percent since this latest round of speculation got going in early March. However unofficial the channels, momentum for a deal is growing substantially.

Citing people familiar with the matter, Reuters says banks and law firms, which it does not name, are working for Verizon on a potential cash-and-shares purchase. This follows earlier media reports suggesting Verizon aimed to resolve things this year, and that it had pondered a full merger with Vodafone or a breakup, though this last idea was formally denied. Last week Verizon’s Chief Financial Officer, Fran Shammo, went on the record to suggest one potential deal-killer, a huge capital gains bill, could be avoided.

The drip-drip of news may be softening the market up for a deal, and suggests Verizon is struggling to engage a recalcitrant Vodafone. It may also point to just how keen the U.S. firm is to get full control of the cash-generative unit.

For Vodafone there is risk in maintaining the status quo. If the lucrative U.S. market grows increasingly competitive, current multiples could prove to be peak valuations. Being paid $50 billion or more in U.S. paper is also less than ideal. But Vodafone could hand the shares onto its own investors, or sell down in several big placements.

Vodafone, quite reasonably, is tight-lipped. Until a real offer emerges, it is hard to see why it should engage in a public discussion. Privately it must be considering just what price makes sense and how much of the proceeds, presumably a very large chunk, should flow straight to shareholders. It may also worry whether all this buzz helps create a self-fulfilling prophecy.

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

ABB’s contrarian push into solar energy looks smart. The Swiss group is buying Nasdaq-listed Power-One for $1 billion in cash – a fully priced deal, given the solar industry’s current financial misery. But ABB insists Power-One occupies a sweet spot. That sounds plausible, and long term, the deal should add up.

The backdrop is gruesome. A glut of cheap Chinese kit has bankrupted firms from Germany’s Q-Cells to China’s own Suntech. Power-One does not make solar panels themselves, but solar inverters, which convert solar power to grid-ready electricity. But even here the picture is grim, especially in Europe, thanks to huge subsidy cuts and tariffs on Chinese imports. So bigger rival SMA Solar Technology warns the global inverter market will shrivel 19 percent in 2013.

The turmoil makes valuation tricky. ABB trumpets a reasonable-looking enterprise value (EV) of 6.4 times 2012 EBITDA, once net cash of $266 million is included. But analysts polled by Starmine forecast EBITDA will plunge from $120 million last year to about $70 million this year – a pretty rich current-year EV/EBITDA multiple of 10.7 times.

Look further out, though, and the sunlit uplands are dimly discernible. Upstarts will have more trouble competing in inverters than in panel-making. And demand for inverters should ultimately grow strongly, once cheaper panels make solar energy competitive with conventional energy sources.

ABB should also be able to reap cost savings and extra sales, by plugging Power-One into its global network. It can spend to reduce the business’s heavy reliance on Europe – a switch Power-One would struggle to fund on its own. This could yet prove to be a shrewdly timed acquisition.

This is the third sizeable U.S. company ABB has taken over in as many years, after Baldor and later Thomas & Betts, worth roughly $4 billion apiece. Under Chief Executive Joe Hogan, ABB has expanded in the United States and cut its dependence on tougher businesses like transformers. The market does not seem entirely convinced: ABB still trades 19 percent below its median 10-year price-earnings multiple. But at least Hogan is taking action, while other European blue-chips are still hunkering down.

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

CVC is taking an opportunistic tilt at Betfair. The buyout giant’s admission that it may make a bid for the UK gambling outfit follows Betfair’s terrible run since flotation. But CVC could struggle to persuade investors to fold their hands at this stage.

Betfair’s betting exchange cuts out bookmakers by allowing punters to bet directly against each other. That eBay-like innovation shook up professional gambling. But as with Ocado and Promethean World, two other UK tech debuts from 2010, the float was badly overhyped. The “bookie that believed it was Google”, to quote one acid newspaper profile, has since delivered investors a negative 45 percent, or 81 percentage points below the FTSE-250’s return.

CVC’s admission of interest was forced by a leak, so there are few details yet. The group, which is investing a gigantic 10.75 billion-euro fund, now has four weeks to assemble a proposal or face being put off-side by UK takeover rules.

A conventional 35 percent premium to Friday’s close would value Betfair’s equity at 944 pence a share. That equates to nearly 980 million pounds ($1.5 billion) or a hefty 27.8 times Starmine’s consensus earnings for the coming financial year. If industry rivals – such as former CVC asset William Hill – also take an interest, the price could rise. It’s not clear what the logic of such an offer would be. These businesses don’t naturally lend themselves to leverage. Still, Betfair has net cash and CVC may reckon it can run it harder both operationally and financially.

The difficulty is that investors will still perceive CVC to be pouncing when the company is undervalued. Betfair’s new Chief Executive Breon Corcoran has launched a revamp, backing away from legally risky “grey” markets, cutting costs and targeting more of Britain’s big “recreational gambling” market. If all goes well, analysts at Jefferies reckon the company could be worth 1,100 pence a share.

Moreover, Betfair’s register is highly concentrated. Founders Ed Wray and Andrew Black, Japan’s Softbank, and French billionaire Bernard Arnault together own nearly 39 percent. CVC has early backer and 6.5 percent holder Richard Koch onside. But it needs to persuade other big holders to surrender some of their potential upside, or to roll their shares into a new private vehicle. Merger arbs will need steady nerves to place bets at this particular table.

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Intelsat’s initial public offering could be a telling launch for stock markets. The owners want a full valuation despite the satellite operator’s slow growth and stratospheric debt. If investors are ready to buy, it suggests risk tolerance is heading sky-high.

Going public puts Intelsat into a new orbit after some five decades in government and private hands. Four buyout firms took over in 2004 and soon merged it with another private-equity backed rival. In the largest “pass the parcel” deal in history, BC Partners and Silver Lake bought the company for $16.6 billion just before credit markets crashed in 2008.

Prospective investors are now being asked to focus more on contract backlogs and emerging market opportunities and less on the risk of plummeting satellites. At the midpoint of the mooted range, Intelsat’s common equity would be worth about $2.4 billion. Proceeds raised may trim net debt to a still-hefty $15.1 billion. Including new preferred shares, the enterprise would be valued at about $17.7 billion.

That would represent 8.8 times last year’s adjusted EBITDA. The multiple is roughly in line with rivals Eutelsat and SES, according to Starmine data.

The two Paris-listed competitors offer more utility-style safety and returns. Each provides a dividend yield of over 4 percent. Intelsat won’t be delivering any such payouts soon. SES and Eutelsat also maintain debt below 3.3 times EBITDA compared to Intelsat’s multiple of 7.5.

Because it pays lower taxes than rivals and is thriftier about capital expenditures, Intelsat would look a little cheaper using a cashflow-based valuation. Companies of a similar vein like telecom towers also mix high borrowing with public listings. And Intelsat may have more cash to put to debt reduction as a particularly lean investment period is coming. Bond refinancing is also helping the company lower interest costs.

Fund managers should remain cautious, even though Intelsat marks that rare, multibillion-dollar giant suitable for many portfolios. Since 2009, the company’s revenue and EBITDA have barely budged. The debt is also uncomfortably burdensome. Intelsat’s IPO will show whether investors who already have pushed U.S. markets to new highs are ready to shoot for the moon.

Deal prospects make Vodafone look cheap. An optimistic reading of the underlying valuations suggests M&A could deliver shareholders in the London-listed mobile giant perhaps 35 percent more value than they have now. That’s an extra 31.5 billion pounds ($47.6 billion). But unlocking this would entail huge deals and huge headaches to match.

Vodafone and U.S. partner Verizon Communications formed joint venture Verizon Wireless (VZW) in 1999. In recent years the JV has grown impressively, while Vodafone’s other businesses have flagged. As the two arms of the company have diverged, M&A speculation has grown. Some talk about a sale of some or all of Vodafone’s 45 percent stake in VZW. Others envisage a full-blown takeover of Vodafone by Verizon Communications. Others mull a breakup of Vodafone orchestrated by Verizon and AT&T.

Verizon rejected this last, latest idea this week. Still, the chatter highlights the gulf between Vodafone’s current valuation and how much its assets could be worth to the right buyers.

Vodafone’s stake in VZW is the jewel in the crown. At, say, 8.5 times EBITDA – the midpoint of the seven-to-10 times range Deutsche Bank recently suggested – this could be worth 82 billion pounds. Some argue it is worth even more, and it could be if a cashflow-based valuation is used. VZW has light debts, no moribund landline businesses, and enjoys high margins.

Put Vodafone’s other businesses on a slimmer multiple of, say, five times. That level – roughly in line with big European peers – would value them at 40.4 billion pounds, after subtracting net debt of 26.5 billion pounds. So Vodafone’s total equity could be worth 123 billion pounds. That equates to 251 pence a share – or about 35 percent over Vodafone’s April 3 close, a Breakingviews calculator shows.

This is catnip for M&A-starved investors. But reality is rarely as obliging as spreadsheets. Talk has swirled inconclusively around the VZW stake for a decade. Funding a buyout would be a big stretch for Verizon since its market capitalization is only $140 billion. The sale could trigger a huge capital gains bill, since Vodafone carries VZW on its books at about $15 billion according to Jefferies, although some analysts see ways to dilute the liability. Citigroup argues that selling Vodafone’s U.S. holding company, where other assets have fallen in value, could cut the tax bill to a maximum $5 billion.

A full-blown acquisition of Vodafone would give Verizon an unwanted, sprawling set of international businesses. Meanwhile, only a small handful of suitors have the firepower to help Verizon stage a breakup – and it’s not obvious that AT&T would want Vodafone’s relatively pedestrian non-U.S. assets. Nor, presumably, would it want to help its domestic arch-rival get ahead.

But with Vodafone valued at 30 billion pounds below its breakup value, the potential for value release is mouth-watering. There might be enough to satisfy the taxman, Vodafone investors and Verizon all at once.

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Tele2 is making a decent Russian exit, all considered. The Swedish telecom is selling its unit there for $3.55 billion to state-backed VTB. Attempts to gatecrash the Kremlin-blessed deal look forlorn. And life may get harder for Tele2’s bigger rivals.

At 4.9 times 2012 EBITDA, the VTB offer values the unit more highly than two of its three local peers, but without a big premium. Still, that looks richer when you consider how it was sidelined. Tele2 was deprived of new mobile spectrum vital for the coming explosion in data usage. The unit risked rapidly losing customers and revenue unless it could adapt existing frequencies. That is something authorities have yet to approve.

What is odder is VTB’s role as buyer. The bank insists this is purely a “private equity” deal. If so, it is elephantine for Russia: roughly three times the size of the country’s largest PE deal to date, Thomson Reuters data show.

Analysts suspect VTB might be holding the unit with a view to selling it later to Rostelecom, the state-backed company which is busy restructuring itself. The former fixed-line monopoly has recently acquired a new boss and a new Putin-linked shareholder. It is pushing into mobile, broadband and pay-TV. Both companies are stragglers. But allied or combined, and with official blessing, they could eventually pose a stronger challenge to the big three – Vimpelcom, MTS and MegaFon.

Tele2 would get half the profit if VTB flips the business within a year. Even without Rostelecom, VTB’s ownership might simply mean the standalone unit gets more sympathetic treatment. But it is leading to a big row. Eyeing synergies, Vimpelcom and MTS say they would pay up to $4.25 billion for the unit. Alternatively, A1, an investment vehicle for cash-flush Vimpelcom shareholder Mikhail Fridman, says it would pay a maximum $4 billion for the unit, or could even bid for all of Tele2.

Both VTB and Tele2 insist this deal is binding, while Tele2 effectively says this is the best realistic outcome. That sounds plausible. Tele2 must have sounded out Moscow about its options. A deal with MTS and Vimpelcom would make the sector less competitive, as would a mooted three-way carve-up.

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

It sounds like caring, there’s a hint of Breton, and it comes with an owl. PPR is becoming “Kering”. Renaming the parent company will hardly deter buyers of the French group’s illustrious brands, such as Gucci or Bottega Veneta. But this latest corporate offence against language hints at worrying groupthink within PPR – sorry, Kering – HQ.

Perhaps PPR was due a rebrand. Boss Francois-Henri Pinault has focused the 22-billion-euro company on luxury and sportswear, shedding the “Printemps” and “Redoute” in an outfit whose initials used to stand for Pinault Printemps Redoute. But, still: Kering … Take a deep breath. Ker means home in Breton, reflecting PPR’s roots, while “-ing”, as a verb ending, expresses movement, we’re told. An owl on the logo bestows vision and wisdom. Of course.

There have been uglier reincarnations: think of PwC Consulting’s “Monday” or Royal Mail’s “Consignia” (both quickly scrapped) or Yell becoming “hibu” (almost an owl, in French at least). The obvious alternatives for the French luxury-and-sneakers maker, Pinault or Gucci, would have linked the listed vehicle too closely either to the controlling family or to the flagship brand.

Still, business is already ill-served by its own empty talk of “key takeaways” to adopt “going forward”, while thinking outside the box. This cloaks bad ideas. Kering is a reminder of just how readily executives also fall for the slightly cooler moonshine of branding gurus. (“We believe in Create Generously”, says Dragon Rouge, PPR’s adviser here.)

Should investors care? Numbers speak louder than words. But for this clunker to get approved suggests top brass at PPR all drink the Kool-Aid (assuming that has not also been rebranded). If that extends to financial decisions, yes, they should care.

(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)

By Quentin Webb

LONDON, March 21 (Reuters Breakingviews) – Europe’s telecoms
firms are finally getting Brussels to ease up. It’s an exciting
moment for this fragmented sector, which bankers have long hoped
would generate a wave of M&A. But the European Union should not
give too much ground.

For years, European telecoms have been tightly policed, and
with good reason. Former landline monopolies fought to stay on
top, while mobile customers were gouged with big charges for
calls overseas (“roaming”) or to rival networks (“mobile
termination rates”). Such behaviour prompted regulators to step
in to keep competition fierce and prices low. Now the sector is
reeling, and telecoms bosses want gentler treatment.

Of course, the sector’s problems aren’t all to do with
regulation. Economic weakness and technological change have hurt
too. So have self-inflicted wounds from being too greedy in
takeovers, or too generous to shareholders.

The combined effect is clear. The top telecoms in the euro
zone’s five biggest economies are now worth 123 billion euros,
versus nearly 300 billion in late 2007. And payouts to investors
have shrivelled. Sector dividends and buybacks will be 24.4
billion euros this year, Citigroup says, roughly half their 2011
level.

Arguably, these financial pressures have constrained
investment in super-fast fixed and mobile broadband. That
threatens the EU’s “digital agenda”, a series of ambitious goals
such as connecting every household to fast broadband by 2020.
The package could cost up to 221 billion euros, the European
Investment Bank reckons.

So phone companies want the European Commission, the EU’s
executive, to deregulate, while permitting higher and more
predictable returns, and more mergers. Executives have found a
sympathetic ear in telecoms supremo Neelie Kroes, who worries
the EU is becoming a digital backwater. Adding to the optimism,
European leaders last week called on Kroes and Co to help bring
about the “digital single market”.

Precisely what this means is moot. Consumers may never be
able to shop around for a cheap mobile contract in, say,
Bulgaria that works at one price across the EU. That would cause
havoc in higher-cost countries. But decently priced wholesale
broadband agreements could make it easier and cheaper to flit
across the bloc, while paying near-local rates.

Dial-a-deal

One big dream is to lift the taboo on deal-making. With four
or five major mobile operators in most big European countries,
“in-market” consolidation would bring big cost savings, and
greater pricing power. A Vodafone (VOD.L: Quote, Profile, Research)-Telefonica (TEF.MC: Quote, Profile, Research)
tie-up, say, would consolidate many markets, including Britain,
Spain, Germany, and the Czech Republic. But consolidation has
been permitted only grudgingly – as in Austria, where a step
down to three players came with stiff conditions.

The EU remains cautious. Joaquin Almunia, the competition
boss, does not seem persuaded. He said recently that phone users
were largely confined to national markets with “only” a few
operators, high barriers to entry, and large variations in
prices.

Despite the industry’s woes, Almunia is right to push back.
Creating a series of national oligopolies would punish consumers
to reward previously profligate telecoms, undermine previous
policy, and not do much to tear down national borders either.

Instead, Almunia suggests international consolidation would
be good if it brought “lower prices and new and better
services”: showing his focus is squarely on the customer rather
than on aiding an industry recovery. But until markets become
more unified, cross-border deals with little overlap – like the
hoary idea of combining France Telecom (FTE.PA: Quote, Profile, Research) and Deutsche
(DTEGn.DE: Quote, Profile, Research) Telekom – make little sense either. Barring increased
purchasing power, there would be scant savings from combining
separate national fiefdoms, each with local regulators, networks
and management. And governments may baulk at such deals anyway.

Synergies without deals

So the focus should be on helping telecoms get the benefits
of scale without weakening competition. The Commission could
encourage more deals that cut costs, by sharing network
infrastructure such as masts and base stations. One template is
Britain, where four operators share two networks. Multinationals
could try to unite their own disparate local networks too. Or
perhaps networks could even be sold to telecoms-gear makers or
financial investors, leaving “asset-light” phone companies.

Other, more modest, industry demands would help ease the
pressure and move the sector towards a genuine single market,
where consolidation might eventually be more defensible. A new,
pan-European watchdog could help to accomplish this, and to rein
in overly aggressive national regulators.

Mobile operators are right to feel aggrieved about wildly
differing terms for spectrum auctions, sometimes run to maximise
proceeds, like a painful 3.8 billion euro sell-off in the
Netherlands. Next time round, handing out newly freed-up 700MHz
spectrum cheaply across the bloc would help operators cope with
a coming data deluge, and make it easier to offer devices that
worked across Europe and Asia.

At least things already look marginally better for the
sector. Markets are rallying and the mobile charge cuts are
nearly over. “Quad-play” packages are helping some companies
regain customers. And Kroes is taking a softer stance on new
fibre broadband investment. For now, the M&A pitchbooks should
go back in the drawer.

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CONTEXT NEWS

– European Union leaders backed a shake-up of the bloc’s
telecommunications markets at a March 14-15 summit. Telephone
companies have pressed states and officials such as Neelie
Kroes, the European Commission’s telecoms chief, to take a
softer stance on issues such as industry mergers.

– The summit’s conclusions said: “the European Council notes
the Commission’s intention to report well before October on the
state of play and the remaining obstacles to be tackled so as to
ensure the completion of a fully functioning Digital Single
Market by 2015, as well as concrete measures to establish the
single market in Information and Communications Technology as
early as possible.”

– Kroes’ proposals will be released in June and will be put
to a summit of EU leaders in October.

– ETNO, the European Telecommunications Network Operators’
Association, said “bold reform” was needed, including “further
deregulation to reflect changing market realities and improve
incentives for investment, while at the same time allowing for
more consolidation to achieve the necessary scale for a
sustainable and competitive EU industry”.

– Neelie Kroes’ blog link.reuters.com/qax76t

– Reuters: EU stares down rocky road to single telecoms
market [ID:nL6N0C783O]

– For previous columns by the author, Reuters customers can
click on [WEBB/]

(Editing by Chris Hughes and Sarah Bailey)

((quentin.webb@thomsonreuters.com))

((Reuters messaging:
quentin.webb.thomsonreuters.com@reuters.net))
Keywords: BREAKINGVIEWS EU/TELCOS/

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Reuters content, including by caching, framing, or similar means, is
expressly prohibited without the prior written consent of Reuters. Reuters
and the Reuters sphere logo are registered trademarks and trademarks of
the Reuters group of companies around the world.

(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own)

By Quentin Webb

LONDON, March 13 (Reuters Breakingviews) – Moleskine is
opening a new chapter in the annals of aggressive flotations.
The maker of sleek black notebooks is seeking an initial public
offering in Milan. The “equity story” is based on strong
branding, growth and margins. Investors must now choose whether
they want to go along with another tale of consumer infatuation.

The Moleskine saga begins with some creative
self-mythologising. In 1997, the company created a brand from
the generic term for oilcloth-covered notebooks, which had grown
hard to find. Original – and long-dead – aficionados such as
Ernest Hemingway and Bruce Chatwin were then invoked to bolster
the newly trademarked product.

Moleskine has since grown at a fast pace. The iPad may be
everywhere today, but creative sorts still tend to sketch or
write by hand. Moleskine has started to hedge its bets by
selling all manner of “nomadic objects”, up to and including
covers for laptops and e-readers. EBITDA at the private
equity-backed group hit 33.5 million euros last year, on revenue
of 78 million euros. Both figures have roughly doubled in just
four years.

UBS, an IPO adviser, reckons the group could now be worth
515 to 775 million euros, according to pre-deal research seen by
Reuters. The bank thinks sales could grow about 18 percent a
year through to 2017, and assigns a price of 20 to 25 times 2014
earnings. That matches the rich valuations for fast-growing
makers of posh consumer goods, such as Michael Kors (KORS.N: Quote, Profile, Research),
Mulberry (MUL.L: Quote, Profile, Research) and Lululemon (LLL.TO: Quote, Profile, Research).

If this float is successful, it would be a milestone:
notepads would probably be the most mundane addition to the
high-end consumer goods sector. But there are good reasons for
scepticism. Anyone can make swanky notebooks, even if Moleskine
has a good name and distribution network. The brand so far lacks
credibility in newer areas such as bags and glasses. And there’s
always the hard-to-quantify risk that Moleskine loses its cool -
perhaps by becoming too ubiquitous or too diverse.

Consumer hits can make terrible investments: look at
Skullcandy (SKUL.O: Quote, Profile, Research) headphones, Heelys roller-shoes, or Pandora
(PNDORA.CO: Quote, Profile, Research) jewellery. And premium valuations depend on robust
future growth expectations: if those collapse, share prices
follow. “To Have And Have Not” is a nasty feeling for investors.

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CONTEXT NEWS

– Moleskine, the Italian notebook-maker, has begun
marketing a planned initial public offering, sources told
Reuters on March 4. The company said it had filed a request to
list in Milan. The company plans to list a 50 percent stake,
comprising both new and existing shares, two of the sources
added.

– The Milan-based company has about 130 employees. It is
controlled by Syntegra Capital, a private-equity fund that was
once part of Societe Generale, which owns a 67.7 percent stake.
The remainder is split between Index Ventures, a venture capital
firm that owns 15.2 percent; founder Francesco Franchesci, with
10.6 percent; and company management with 6.5 percent.

– Moleskine’s January registration document (in Italian): link.reuters.com/nyj66t

Reuters: Italy’s Moleskine kicks off share listing – sources
[ID:nL6N0BWGLM]
- For previous columns by the author, Reuters customers can
click on [WEBB/]

(Editing by Pierre Briançon and David Evans)

((quentin.webb@thomsonreuters.com))

((Reuters messaging:
quentin.webb.thomsonreuters.com@reuters.net))
Keywords: BREAKINGVIEWS MOLESKINE/

(C) Reuters 2012. All rights reserved. Republication or redistribution of
Reuters content, including by caching, framing, or similar means, is
expressly prohibited without the prior written consent of Reuters. Reuters
and the Reuters sphere logo are registered trademarks and trademarks of
the Reuters group of companies around the world.

(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)

By Quentin Webb

LONDON, March 6 (Reuters Breakingviews) – Vodafone (VOD.L: Quote, Profile, Research)
should dash for a U.S. exit if it’s open. Shares in the UK
telecoms group soared on March 6, on hopes that Verizon
Communications (VZ.N: Quote, Profile, Research) could buy it out of their $250
billion-plus joint venture. Ending a long standoff while U.S.
assets are at high valuations makes sense – as long as Vodafone
doesn’t squander the proceeds on a costly makeover.

Verizon Wireless, the 45-55 joint venture, has been a
sticking point for years. The main gripe was once that Verizon
blocked dividend payments. Nowadays the problem is about scale.
As U.S. telecoms have thrived and European rivals have
languished, ever more of Vodafone’s value is bound up in an
asset that it does not control. So it makes sense to get out.
And U.S. telecoms valuations may be near a peak – the market is
likely to get tougher after Japan’s Softbank (9984.T: Quote, Profile, Research) bought
into Sprint Nextel (S.N: Quote, Profile, Research).

The unit may be worth 8 times EBITDA, implying a value of
$120 billion for Vodafone’s stake, using Deutsche Bank
estimates. Without raising a crazy amount of debt, Verizon could
pay $40 to $50 billion in cash, with the rest in its own stock.
That would leave Vodafone owning about a third of the U.S.
diversified telecom.

A potential $20 to $30 billion tax bill makes agreeing a
price that’s acceptable to both sides much harder, although
paying mostly in shares could delay the due date. And the UK
company would still retain a large, passive U.S. holding, which
would probably not be given a full rating by the market and
analysts. The obvious alternative – a full Verizon-Vodafone
merger – looks unwieldy and unlikely. For all its complications,
an exit from the joint venture would be a good result.

Even if a deal can be struck, its real benefit depends on
what Vodafone does with the strategic options that come with
it. The temptation would be to use the proceeds to plug
strategic gaps in Europe, perhaps by pursuing richly valued
cable assets such as Kabel Deutschland (KD8Gn.DE: Quote, Profile, Research), Spain’s Ono
or even a combined Liberty Global (LBTYA.O: Quote, Profile, Research) /Virgin Media
(VMED.O: Quote, Profile, Research). But Europe’s telecoms have a terrible track record of
creating value through acquisitions. The rally in Vodafone’s
shares suggests investors may have already forgotten that.

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CONTEXT NEWS

– Verizon Communications is working to resolve its
relationship with Vodafone Group this year, Bloomberg reported
on March 5, citing people familiar with the situation.

– The U.S. telephone operator and its UK partner discussed a
full combination as recently as December but talks stumbled over
disagreements on leadership and headquarters location, the
newswire said. That makes a full or partial buyout of Vodafone’s
45 percent stake in Verizon Wireless, the duo’s mobile-phone
joint venture, more likely, Bloomberg said. All three companies
declined to comment.

– Vodafone shares leapt in the next trading session. By 1437
GMT on March 6, they stood 7.3 percent higher at 180.9 pence a
share.

– Bloomberg: Verizon Said to be Seeking to Resolve Vodafone
Venture link.reuters.com/dec56t

– Reuters: Verizon, Vodafone mull Verizon Wireless options
-report [ID:nL1N0BXG4Z]

RELATED COLUMNS

Bundles of joy [ID:nL4N0BD5V1]

On the horizon [ID:nL3E8M63RA]

– For previous columns by the author, Reuters customers can
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