It seems to me that corporate activity is heating up recently; now the election is out of the way, there seems to be a renewed appetite for takeovers. This month alone, we’ve seen the possibility of consolidation in the gambling sector with GVC Holdings working with Amaya in an attempt to snap up the assets of Bwin.Party Digital Entertainment from under the nose of 888 Holdings.
And yesterday, in addition to its results, Booker Group announced the proposed acquisition of Musgrave Retail Partners — owner of Londis and Budgens — for a consideration of £40 million.
Whilst these deals are not material in the grand scheme of things, I must admit that my ears pricked up on Wednesday following some less-than-subtle hints from John Malone, chairman of Liberty Global (NASDAQ: LBTYA), regarding a potential merger with Vodafone (LSE: VOD), which sent the shares in an upward trend following some less-than-spectacular results, released on Tuesday.
Does it Make Sense?
The comments came just a day after Vodafone released its full-year earnings – I suspect, deliberately. The company noted that it continued to struggle with falling prices coupled with the need to invest in their networks and other technologies for the future. That said, the full year dividend was raised by 2% (better than inflation), taking it to 11.22 pence. Additionally, management stated that they are also planning to increase the payment annually as a sign of their confidence in future cash flow generation. Forecasters are pencilling in a further 2% increase, which beats inflation at the moment.
Malone said that that a long-rumoured combination between Liberty and Vodafone would be a “great fit”, and the market seems to be taking the possibility of a deal seriously, too, with speculation abound in the sector after deals such as BT Group’s proposed takeover of EE and Sky’s agreement with Telefonica.
In an interview with Bloomberg, the Liberty Global chairman pointed to potential benefits of a combination in markets such as the UK, Germany and the Netherlands, saying: “We’ve looked at that from our side and there would be very substantial synergies if we could find a way to work together or combine the companies with respect to Western Europe.”
So, there would be the possibilities of synergies and the emergence of a powerful competitor against the other big players in Europe…
Eat or Be Eaten
With the rise across Europe of quad-play services — mobile, broadband, fixed line and TV — Vodafone, the world’s second largest mobile operator, has been left wanting and now needs to play catch-up, even more so after Sky and BT’s deals in the last year.
Personally, I think that the firm could do worse than a merger with a global giant. Should management walk away from any deal, they may well be left looking around for less powerful strategic partners or be forced into overpaying for an outfit simply to bring them level with their competitors.
What’s My Take?
As we can see from the chart below, the company has usefully outperformed the FTSE 100 over the past 12 months.
For my money, I wouldn’t be planning on buying a company based on a few words from the chairman of a rival company. Indeed, if a deal didn’t come to fruition, I suspect the share price would be headed in a southerly direction given the lack of growth on offer.
And whilst the shares currently offer an attractive yield of just under 5%, I think that there are currently better opportunities out there.
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Dave Sullivan owns shares in Booker Group and GVC Holdings. The Motley Fool UK has recommended share in GVC Holdings and Sky. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.