Vodafone Group plc Looks To Grow In 2014

Flush with £25bn in cash, Vodafone Group plc (LON:VOD) is eyeing up acquisitions.

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Vodafone’s (LSE: VOD) (NASDAQ: VOD.US) share price broke through a 12-year high in 2013 as talks heated up over selling its stake in Verizon Wireless. The sale took place, of course, and lucky shareholders will receive their portion of the windfall payment on 4 March.

Vodafone, now decidedly slimline in its post-Verizon shape, is facing no shortage of challenges. The company’s European operations are struggling as a result of intense price competition with rivals such as Orange, Telefonica and Deutsch Telecom. This needs to be addressed as two thirds of revenue comes from Europe, where revenue fell 10% in the three months ended 31 December.

Fortunately, there are plenty of ways Vodafone can react given that it is now cash rich to the tune of some £25bn off the Verizon sale. Not all of that money went to shareholders and we’ll likely see acquisitions and further investment in new technology.

The last thing we should expect is that this telecoms giant will sit still in 2014.

On the move

Is a shopping spree on the cards? Certainly, chief executive Vittorio Colao has indicated as such. He commented:

“We are looking at acquisitions that are sizeable and could transform the company. The theory is that if an acquisition makes sense you should not be worried by the size because shareholders should approve it”

No names were put forward although Vodafone reportedly bid for Ono, Spain’s largest cable operator, in a deal worth around £5.8bn.

Ono’s owners have instead decided to press on with an initial public offering, while Vodafone’s next move — perhaps it could devote more cash to the offer? — has yet to be made. It was an interesting development nonetheless, as such a deal would’ve provided a strong challenge to Spanish rival Telefonica.

Deal maker

Another company, the American telecoms firm Liberty Global, was thought to be considering a bid for Ono. This isn’t the first time Vodafone and Liberty Global have come head to head, with the American firm previously losing out after Vodafone sealed a deal for Kabel Deutschland, the German cable operator.

Liberty Global, owned by billionaire John Malone, is driving into Europe and has already acquired Virgin Media for £15bn and Dutch cable operator Ziggo for £8.3bn. The advantage Vodafone has is that it has cash in hand to pay for acquisitions, instead of doing a cash and paper deal, so it should trump any rival suitors for acquisition targets.

You may have faith that Vodafone is following the right strategy going after acquisitions. Alternatively, Vodafone trades on a P/E of 25, which is perhaps expensive if you haven’t the faith that takeovers can deliver significant growth.

Lastly, Vodafone has been one of the UK’s biggest dividend payers, but who knows if that’ll stay the case in its current iteration.

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.

> Mark does not own shares in Vodafone.

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