Why The Verizon Deal Puts Me Off Vodafone Group Plc

Although the market seems to be very excited about the deal, I think it is bad news for Vodafone Group plc (LON: VOD).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The news that Vodafone (LSE: VOD) (NASDAQ: VOD.US) will sell its 45% stake in joint venture, Verizon Wireless, to Verizon Communications has been greeted with praise by many investors.

Many seem to be very content with the 112p per share that will be returned to shareholders and with the potential for further M&A activity.

Indeed, there now seems to be some talk about the potential sale of other parts of Vodafone’s business. It seems as though the market just loves bid talk and is already plotting what other assets Vodafone could dispose of.

However, I feel that the decision to sell its stake in Verizon Wireless is a bad move for Vodafone.

Indeed, the idea that shareholders have somehow benefitted from the deal really puzzles me. Certainly, shareholders will receive 112p per share and can go and do whatever they like with that money. However, although they may feel richer, they are not actually any richer because they are merely receiving 112p that was previously capital held by Vodafone.

The only difference as far as I can see is that the 112p is now cash in hand rather than capital within Vodafone’s business. For me, it’s like selling a 5 bedroom detached house for £1 million, buying a 3 bedroom bungalow for £400,000 and saying that you’re £600,000 better off.

However, the main reason I’m against the sale is that the Verizon Wireless joint venture between Vodafone and Verizon Communications is a great business! Why on earth would you want to sell a stake in a great business?

Verizon Wireless is a major player in a vast market, with wireless becoming more and more popular in the US. It has paid a number of dividends to Vodafone, allowing Vodafone to pay special dividends to shareholders, and is extremely well placed to deliver profitability growth in future.

Without Verizon Wireless, Vodafone has European operations that continue to struggle, partly as a result of onerous regulation and a high degree of competition, while its Indian footprint has thus far produced high costs, some return and a whole host of tax issues.

Of course, many commentators correctly state that Vodafone will have substantial firepower with which to conduct its own acquisitions (although management have said this is unlikely in the short run). However, why sell a stake in a strong business and risk not being able to find one that is as good? Surely Vodafone cannot be content with having a struggling European business and a troublesome Indian business as its main revenue generators?

Although shareholders may be satisfied with the share price being above 200p for the first time in almost 12 years, I think that there are better opportunities elsewhere.

Indeed if, like me, you are always on the lookout for interesting opportunities, I recommend you view this exclusive report entitled 5 Shares You Can Retire On.

It details the Motley Fool’s best 5 ideas and is completely free and without obligation.

Click here to take a look – it might just provide the boost your portfolio needs.

> Peter does not own shares in Vodafone. The Motley Fool has recommended shares in Vodafone.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Investing Articles

2 mouthwatering FTSE growth stocks I’d buy and hold for 10 years

Growth stocks purchased today could be the gateway to many years of capital growth and returns. Here are two picks…

Read more »

Investing Articles

Can the IAG share price really be as dirt cheap as it looks?

While most shares have recovered since the Covid days, the IAG share price is staying stuck to rock bottom. Surely…

Read more »

Investing Articles

BAE Systems shares are flying! Have I missed the boat?

Sumayya Mansoor looks into whether or not BAE Systems shares are still a good buy for her portfolio after the…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

1 heavyweight FTSE 100 share I’d buy as London retakes its crown

Some Footsie firms are extremely large, but that doesn't mean they couldn't get even bigger. Here's one such FTSE 100…

Read more »

Investing Articles

I’d buy 5,127 National Grid shares to generate £250 of monthly passive income

With a dividend yield of 6.5%, Muhammad Cheema takes a look at how National Grid shares can generate a healthy…

Read more »

Investing Articles

The FTSE 100’s newest member looks like a no-brainer to me!

This Fool explains why she sees the newest member of the FTSE 100 as a great opportunity after its recent…

Read more »

Investing Articles

Empty Stocks and Shares ISA? Here’s how I’d start earning a second income from scratch

Like the thought of earning extra cash tax free? Our writer explains what he'd do to begin earning passive income…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

No savings at 25? I’d start by investing £3k in these 3 red-hot FTSE 100 shares

Harvey Jones thinks these three FTSE 100 stocks would be a great way to kickstart a portfolio of UK shares.…

Read more »