Skip to main content

The Globe and Mail

Stock to watch: Speculation mounts on Vodafone-Verizon merger

Vodafone Group PLC

Tuesday's close: $27.52 (Trades in the U.S. as an American Depositary Receipt)

52-week trading range: $24.42 to $30.37

Story continues below advertisement

Annual dividend: $1.58 per unit for a yield of 5.7 per cent

Analysts' ratings: There were 3 buys, 1 hold and 1 sell, according to Bloomberg data. Target prices ranged from $21 a share estimated by Sanford C. Bernstein analyst Robin Bienenstock to $31.40 a share by Goldman Sachs analyst Timothy Boddy.

Recent history: Securities of the London-listed British mobile operator have struggled amid a weak European market dragged down by the region's debt woes. But Vodafone's American Depositary Receipts have gained about 9 per cent (including dividends) over the past year thanks to recent buying activity. The units plunged to a 52-week low last month, but then surged last week amid speculation that Vodafone and U.S.-based Verizon Communications Inc. were poised to resolve the future of their lucrative U.S. joint venture. One scenario is a merger between the two telecom giants. The other is Vodafone selling its 45-per-cent stake in fast-growing Verizon Wireless to its partner, and using the cash to make acquisitions in Europe.

Manager insight: Units of Vodafone have been stuck in a trading range for the past couple of years, but it's no time to hang up on the telecom company. A merger between Verizon Communications and Vodafone, or the sale of Vodafone's stake in their joint venture, could make its stock "go up substantially higher," says Norman Levine, a managing director with Toronto-based Portfolio Management Corp.

A merger is a more likely scenario because there would be "minimal tax implications" compared with Vodafone selling its joint-venture stake, suggested Mr. Levine, who has owned its ADRs for many years. "They would call it a merger but it would basically be Verizon buying Vodafone [whose stock is lot cheaper on a price-to-earnings multiple]...They would have to pay up for Vodafone."

Mr. Levine was attracted to the British mobile carrier because of its stake in Verizon Wireless, "which is the best wireless asset in the world." If Vodafone were to sell its stake, however, it could use some of the proceeds for acquisitions - like Germany's largest cable operator Kabel Deutschland Holding AG, which it has been eyeing, he said. "If they do this transaction [sell its interest in Verizon Wireless] in the United States, they are basically looking to sell high, and buy low in Europe where [asset prices] are down."

It's tough to predict whether the merger or sale scenario will happen this year or next year, but Vodafone investors will continue to benefit from the hefty dividend that Verizon Wireless began paying to its parents two years ago, he said. In 2011, Vodafone made a special payout to its own shareholders. In 2012, it bought back stock and reduced debt. "We expect Verizon Wireless to pay out a large dividend this year," Mr. Levine said. "Vodafone will either pay some, or all of it to shareholders, or once again pay down debt and buy back shares. It's all accretive to shareholders no matter what."

Story continues below advertisement

Report an error Licensing Options

The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨

Combined Shape Created with Sketch.

Combined Shape Created with Sketch.

Thank you!

You are now subscribed to the newsletter at

You can unsubscribe from this newsletter or Globe promotions at any time by clicking the link at the bottom of the newsletter, or by emailing us at