Speculation is running rife through the market that Vodafone (VOD) could be close to sealing a much mooted agreement over the future of Verizon Wireless (VZW). That's the US mobile network operator in which it owns a 45% stake with co-owner Verizon Communications (VZ:NYSE) holding the other 55%. Shares in the UK mobile giant rose 6.5% to 179.5p today, topping the Footsie leaderboard and hitting their highest since last August. That's an extra £5.4 billion slapped on to the group's market value at a stroke.


But what's got investors so excited? The short answer to the first part of this puzzle is cash, and lots of it. Some analysts have crunched numbers and suggest Vodafone's 45% stake could be worth an enormous $115 billion (£76.3 billion) to it, or about 85% of its current market value. Investors are clearly betting that a special dividend windfall would be on the cards, but selling its VZW stake would allow the group to do far more than grease shareholder palms.


It would also free up funds to invest in a renewed acquisition push, probably bolstering its sagging European operations. Late last year (13 Nov) Vodafone was forced to write-off £5.9 billion from the value of its businesses in Italy, Greece and Spain, plunging the group £492 million in to the red. But Vodafone has begun to see signs of hope in data use on the continent, pointing out accelerating data usage in Europe thanks to iPhone and Android handsets, plus tablet computer growth. Analysts at broker Oriel Securities believe Vodafone is 'close to unlocking its data growth potential.'


Market gossip has recently flagged a possible bid for Kabel Deutschland (KD8Gn:DE), a potentially smart move (at the right price) that would add vital backhaul capacity to cope with the rapid growth of data traffic. This strategy saw Vodafone pay over £1 billion last year for Cable & Wireless Worldwide.


While Verizon Communications and Vodafone are thought to be on cosy terms, the pair are also reckoned to have been discussing a multitude of options, including a partial VZW sale by Vodafone, or even a full merger of the two telco giants. Reports suggest talks along these lines took place as recently as December. That latter outcome looks a little far fetched to us, but a partial sale cannot be ruled out, if only because of the mountainous tax bill facing Vodafone upon a full scale sale. No final decision looks likely any time soon, but analysts at Espirito Santo reckon Vodafone is as close now as it's ever been to settling VZW's long-term future.

Issue Date: 06 Mar 2013