Why Evaporating Takeover Talk Could Send Vodafone Group plc Plummeting

Today I am looking at why flagging takeover chatter could drive Vodafone’s (LSE: VOD) (NASDAQ: VOD.US) shares into the ground.

Buyout failure could bully prices lower

A potential takeover of UK telecoms giant Vodafone dominated investor message boards during the first half of the year, although much of this chatter has since died down. Rumours around a potential move from US giant AT&T reached fever pitch around the turn of the year, a phenomenon that propelled Vodafone’s share price to all-time highs back in February 252.3p per share. But prices have since conceded more than a fifth as takeover talk has dissipated.

AT&T was forced to declare to the London Stock Exchange in January that it had no immediate intention to acquire its UK rival, although the company was widely expected to come back six months later in accordance with exchange regulations. Vodafone is seen by many as an obvious target given the American firm’s stated desire to expand in Europe.

Another bid is not entirely out of the question, of course — the six-month period expires at the end of this month — but AT&T’s decision in VodafoneMay to merge with satellite TV provider DirecTV for $48.5bn would seem to take a potential bid for Vodafone off the table.

Meanwhile, gossip surrounding another potential purchaser in Japan’s SoftBank has also receded following the firm’s approach for T-Mobile USA. The Asian company’s Sprint division in the US has been locked in talks with T-Mobile majority owner Deutsche Telekom for almost a month now to merge with its peer for $32bn.

On top of this, Vodafone itself has been busy circling the wagons to deter potential bidders by conducting a variety of its own acquisitions in recent months. Takeover chatter was exacerbated when the firm divested itself of its 45% stake in Verizon Wireless back in February for $130bn, so Vodafone’s strategic asset stacking since then could be deemed a conscious attempt to deter predators.

The company made its first foray into the ‘triple services’ — i.e. the broadband, television and telephone — market last year when it acquired cable giant Kabel Deutschland for a cool €7.7bn. Since then it has forked out a cool €7.2bn to purchase Spanish multi-services provider Ono, bought out its remaining stake in Vodafone India (taking the total transaction cost to £1bn), and acquired Italian telematics specialist Cobra Automotive Technologies for €145m.

Both AT&T and SoftBank’s proposed deals are still to get the green light from regulators, meaning that a return for the UK company cannot be completely ruled out. But should these deals get signed off as widely expected, and fresh suitors for Vodafone fail to come to the fore, I believe that further rounds of share price weakness are very much on the cards.

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> Royston does not own shares in any of the companies mentioned in this article.