The FT said that Vodafone (VOD) the huge cellular company, was looking at buying Verizon (VZ) for a premium of about 25% or $160 billion. Vodafone issued a denial.
Whatever the merits of the press story, Vodafone would not want Verizon at its current valuation. The company has bet too much on its fiber-to-the-home initiative and it may take years to see whether that $23 billion investment will pay off
Verizon also has a large fixed-line business that is being eaten alive by VoIP.
The normal investment banker’s pitch here would be to pay the $160 billion and keep the 65% of Verizon Wireless that Vodafone does not already own. But, cellular subscriber growth in the US is beginning to slow as consumer penetration rates begin to move toward saturation.
So, the argument would go, sell off the land line and fiber business to help pay for the $160 billion transaction. Unfortunately, there is little evidence that these businesses would fetch much. Qwest (Q), which is primarily a landline company, has underperformed both Verizon and AT&T (T) in the market over the last year.
Verizon simply isn’t worth $160 billion. It may not be worth what the shares trade for today.
Douglas A. McIntyre can be reached at [email protected].
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