Is Vodafone Group plc Planning A Takeover Of British Sky Broadcasting Group plc?


Ever since Vodafone Group plc (LSE:VOD) (NASDAQ: VOD.US) announced that it was going to sell its 45% stake in Verizon Wireless for $130 billion, there has been speculation that Vodafone itself will become a takeover target.

However, now it would appear as if Vodafone has become the predator, and it’s widely tipped that the company will swoop on British Sky Broadcasting Group plc (LSE: BSY) (NASDAQOTH: BSYBY. US). Indeed, this acquisition would fit well into Vodafone’s plan for growth, as the company seeks to expand into new markets due to slowing growth and contracting margins in the telecoms industry. Vodafone’s recent acquisition of German cable TV operator Kabel Deutschland was also part of the company’s push into new markets.

Fending off predators

Vodafone has much to gain from a tie-up with Sky. For example, Vodafone’s house broker UBS believes that synergies from the deal would be worth around 250p per Sky share to both parties, about £4 billion.

What’s more, it is widely speculated that Vodafone, now it has disposed of its share in Verizon Wireless, could become a takeover target to US telecoms giant AT&T. A deal with Sky could get AT&T off of Vodafone’s back, which is likely to mean a better return for shareholders in the long term.  

Still, there are rumours that Sky’s parent company, 21st Century Fox is seeking to unite its European operations, meaning a takeover of Sky, pushing Vodafone out of the picture. Moreover, 21st Century Fox is still a majority shareholder of Sky and it is likely that the company would veto any pan-European-tie-up in which it became a minority partner.

Other options

Having said all of that, many City analysts believe that Vodafone will not launch a bid for Sky right now. Indeed, if Vodafone were to launch a bid right now, the company would have to pay a significant premium for Sky’s shares, which is likely to offset any cost savings derived from the deal. In addition, Vodafone is still haunted by its ill-fated, overpriced, $183bn takeover of German company Mannesmann at the height of the telecom boom in 2000.

Nevertheless, a partnership between Vodafone and Sky is more likely, where discount Vodafone mobile contracts are bundled with Sky television packages.

Foolish round-up

So overall, Sky would make a great acquisition for Vodafone. However, even though Sky is only a tenth the size of Vodafone, it is unlikely that Vodafone will make a bid. Even so, a partnership between the two companies is a likely scenario. 

Sit back and relax

One of Vodafone's most attractive qualities is its dividend yield, which currently sits at 4.4% and whatever happens between the company and Sky, this payout is unlikely to be affected.  

A portfolio of stocks that pay a healthy dividend can be a great way to earn a passive income and if you want to find more nice dividends like Vodafone's, there are plenty of top FTSE 100 companies that are paying out the cash. To learn how to identify them for yourself, have a look at the new Motley Fool report "How To Create Dividends For Life", which gives you 5 Golden Rules for Building a Dividend Portfolio.

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> Rupert does not own any share mentioned within this article. The Motley Fool has recommended shares in BSkyB.