Vodafone Group (LSE: VOD) (NASDAQ: VOD.US) shares are up by 46% so far this year, and their most recent lurch higher came after Bloomberg reported that AT&T is considering a takeover offer for the Newbury-based firm.
The deal is still at the planning stage, but AT&T also approached Verizon about a joint deal to acquire Vodafone earlier this year, and the US giant is known to be keen on Vodafone’s European assets.
Is the Verizon Wireless payout at risk?
A takeover deal with AT&T would not proceed until after the sale of Vodafone’s stake in Verizon Wireless has completed, which is expected to happen early in 2014. That means that shareholders’ 112p per share payout is definitely safe.
How much would AT&T pay?
As a Vodafone shareholder this deal interests me, so I’ve been taking a closer look at the figures to see what AT&T might be prepared to pay for Vodafone.
The most obvious starting point for a valuation is Vodafone’s stake in Verizon Wireless, which it has sold for $130bn. According to Vodafone’s figures, this equates to an Enterprise Value/EBITDA multiple of 9.4 (enterprise value is market cap plus net debt).
Valuing Vodafone on this basis gives an enterprise value of £129bn, slightly below Vodafone’s current enterprise value of £140bn, but exactly in line with my estimate of Vodafone’s enterprise value after the Verizon Wireless sale has completed.
As a result, I think there’s a realistic possibility that AT&T could offer Vodafone shareholders a price of around 228p per share, which would take the total 2014 payout for each Vodafone share to 340p.
Is that too optimistic?
Most analysts agree that Vodafone managed to get a good price for its share of Verizon Wireless. Whether its European operations will be valued so generously is uncertain, as in recent years, several European mobile operators have been sold for lower valuations.
In 2011, Polish operator Polkomtel SA was sold for an EV/EBITDA multiple of 6.4, while Telefonica Czech, which is thought to be for sale, currently has an EV/EBITDA multiple of just 5.6.
I think it’s fair to assume that Vodafone’s pan-European operations would attract a premium over smaller operators like these, so I’ve estimated a worst-case scenario valuation multiple of 7, which equates to an offer of around 170p per Vodafone share. When combined with Vodafone’s Verizon Wireless payout, this would equate to 282p per share.
