What's the deal with the Vodafone-Verizon deal?
When somebody sells a perfectly good business you always have to ask why are they really selling. So why is Vodafone is selling out its 45 per cent stake in its US joint venture with Verizon Communications for $130 billion?
We are told this is because the two business partners just have not been getting along very well recently. Pinocchio must have come up with that answer. In business you always make an effort to get on if it is profitable.
Avoiding a stock market crash?
So why has Vodafone decided to cash out of the US market now? Well it most probably does disagree fundamentally with its business partner on the outlook for the US stock market.
Is it very bright to buy a stock that has run up massively in price over the past four years, or to take your money and run? The British communications giant ends its 14 years in the US returning an estimated $83 billion to shareholders.
Nice work if you can get it. Remember when Steve Case managed to flog his ailing Internet group AOL to the Time Warner’s wise old men at the top of the Internet bubble for over $200 billion? Is the Nasdaq not now at the highest it has been since then?
True Verizon Wireless – born out of the merger of Vodafone’s Airtouch and the mobile division of Bell Atlantic in 1999 that became Verizon – has been the most profitable part of Vodafone for years. Time to sell then, and very well timed too.
Look at it from Vodafone’s viewpoint. Suddenly the company is cash rich. What if the market plunges and a string of attractive deals in this space became available. Who would be the consolidation king with cash in the bank?
Just in time!
This always happens just before a major stock market correction or crash. Somebody bright cashes out big time and at the right time. If Verizon does not like its former business partner very much now, it may come to hate them in the future.
For stock market observers let us chalk up another omen of things to come, probably very soon. Interest rates are heading up, stocks are going to go down. Economics 101. Vodafone only became a giant through shrewd city deals. This is just another one.
Still that is not the way the Verizon board sees it. They can see only blue sky, not the sky falling in! Just look at the smile on the Vodafone CEO’s face below and think how big it will be when the stock market goes down…