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Why I Think A Takeover Of Vodafone Group plc Makes Sense For AT&T Inc.

Vodafone (LSE: VOD) (NASDAQ: VOD.US) is rumoured to be a bid target of AT&T, with news continuing to circulate that the latter is particularly interested in the former’s European operations.

This would make sense for AT&T because it is believed to be keen to diversify its geographic exposure, with the company firmly focused on the US at the moment. As mentioned, AT&T is believed to be most interested in Vodafone’s European operations and it may be that AT&T believes that, with Europe going through a prolonged recession, there could be a good deal on offer.

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Indeed, although Europe is struggling, Vodafone is well positioned on the continent, with the UK and Germany being leading markets for the company and both of these countries arguably being better positioned than other parts of Europe to deliver long-term growth.

Of course, AT&T may be further encouraged by Vodafone’s deal to purchase Kabel Deutschland. Not only does this increase Vodafone’s exposure to Germany (which in itself AT&T is likely to see as positive because Germany remains one of the most lucrative markets in Europe), it also diversifies the company’s European operations away from mobile telecommunications and into fixed-line telecommunications, too.

AT&T may be attracted by this increased diversity of income stream and may feel that it lowers the risk of buying Vodafone, simply because it is not a pure play (or practically pure play) mobile operator in Europe.

Furthermore, a deal for AT&T to acquire Vodafone may be more likely because Vodafone owns a vast amount of infrastructure — not just in Europe but across the world, including in India. Indeed, Vodafone has spent billions of pounds on developing the mobile network in India and, although it is unclear whether AT&T would just be interested in Vodafone’s European operations or not, India could be viewed as a sound long-term investment for the company.

As with Europe, the Indian economy is going through a rough patch at the moment but, should AT&T look to the long run (which is very likely) it may feel that both regions offer significant growth potential.

So, I feel that a deal for AT&T to buy some or all of Vodafone’s operations could make sense from a strategic point of view. As with the deal for Vodafone to sell its stake in Verizon Wireless to Verizon Communications, the rumours have been persistent, meaning there could be ‘no smoke without fire’.

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> Peter does not own shares in any company mentioned here. The Motley Fool has recommended shares in Vodafone.

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