The attention of Wall St. types who want to break companies up to "unlock value" has turned to cell service giant Vodafone (VOD), the largest company of its kind outside China.
A firm called Efficient Capital Structures has contacted Vodafone about potentially restructuring the company. VOD does own a lot of assets including part of Verizon Wireless in the US. Efficient Capital thinks that it can create $78 billion in new market value for the company by doing things like issuing a new "tracking stock" for the Verizon piece of the company, as if current shareholders don’t know that Vodafone has the Verizon stake. Efficient Capital also wants the company to give shareholders interest paying bonds.
But, there may be some sense in the plan. Owning a 45% stake in a US wireless company may not be sensible, especially if the majority owner might buy Vodafone out. And, Verizon (VZ) certainly might look at that. While its landline revenue is under siege from VoIP and it is at the early stages of rolling out its fiber-to-the-home products, wireless is the star of the Verizon show.
Verizon’s stock is at a two-year high and its market cap is at $125 billion, so what better time to buy Vodafone out?
What is Verizon Wireless worth? Well, smaller and less successful rival Sprint has a market cap of $65 billion. Put a premium on that for being the market leader, and perhaps Verizon Wireless is worth $75 million to $80 million. Vodafone will want a little extra to part with the asset, so that might take the enterprise value up to $90 million. That would put the price of Vodafon’s 45% at about $41 million.
Vodafone’s shareholders are actually within their rights to question why the company would want a minority stake in Verizon Wireless, and owning the entire enterterprise would strenthen VZ’s best business.
Makes sense.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
Top Gaining Stocks
Top Losing Stocks