Recent Declines Have Made Vodafone Group plc An Attractive Takeover Target

Vodafone‘s (LSE: VOD) (NASDAQ: VOD.US) performance so far this year has been poor. Excluding dividends, the company’s shares have fallen around 18% since the share consolidation and special dividend earlier this year.

However, these declines could be good news.

Speculation vod

Traders and analysts within the City, are speculating that at some point during the next few months, Japanese telecommunications giant SoftBank will make a bid for Vodafone, after dropping a bid to acquire T-Mobile US last month. 

Whispers and idle chatter suggest that SoftBank’s Chairman and CEO, Masayoshi Son, has somewhat of a soft spot for Vodafone. This affinity seems to stem from SoftBank’s takeover of Vodafone’s Japanese business back during 2006. The deal netted Vodafone around $15bn and Masayoshi Son, due to frequent trips between Japan and the UK, took a liking to Vodafone. 

Indeed, according to the Nikkei, the only Asia-focused English-language publication, SoftBank company insiders have been quoted as saying: 

“I wouldn’t be surprised if our CEO acquired Vodafone, since we are no strangers to each other.”

A lower price 

When SoftBank brought Vodafone’s Japanese arm, Vodafone had a market value of $134bn, making Vodafone the company the largest telecommunications company in the world.  

Nearly a decade on and Vodafone’s market value has fallen to just under $89bn, or £54bn. Vodafone is now tiny in comparison to global sector giants such as AT&T and Verizon Communications, which support a market cap of $179bn and $202bn respectively.

As a result, Vodafone’s falling market value has made the company a more attractive takeover target. 

It’s believed that SoftBank will now have to pay at least $100bn to gain control of Vodafone, around £60.7bn, or 230p per share. However, I doubt shareholders would be willing to accept this miniscule, 13.9% premium to the current share price after recent declines. 

A break-up

As well as SoftBank, it has been rumoured for some time that US telecoms giant AT&T has been weighing up an acquisition of Vodafone. That said, AT&T’s management has stated that it has no desire to acquire Vodafone in its entirety, although this statement started speculation that Vodafone could be broken up. In this scenario, Vodafone’s European operations would go to AT&T, while SoftBank would buy Vodafone’s other international operations. 

I should state that as of yet, there have been no definitive takeover talks between Vodafone, AT&T and Softbank. 

Turning things around

Whatever SoftBank and AT&T decide to do, they will have to make a decision soon before Vodafone’s shares begin to head higher. Indeed, Vodafone’s poor performance so far this year has been due to unfavourable trading conditions within Europe, where sales have collapsed.

The company is trying to turn things around within Europe and Vodafone’s last trading statement showed some progress within the region. Over the next few years, Vodafone is spending £19bn to boost its presence across Europe.

Nevertheless, even if there is no deal to buy out Vodafone, the company remains an attractive long-term investment.

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Rupert Hargreaves has no position in any shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.