Verizon And Vodafone Talk Merger, Would Create Mammoth Telco

Verizon (VZ) owns 55% of Verizon Wireless and Vodafone (VOD), the largest cellular company in Europe owns 45%.  Now that most of its debt is paid down, Verizon Wireless can start paying dividends to its owners. Verizon may want to retain that money to allow for capital spending to build a 4G network and compete with arch-rival AT&T (T).

The solution to the tension over the joint ownership of the American wireless company may be to simply merger its two parents and create one of the largest phone companies in the world. According to The Telegraph, those conversations have already started. “The paper reports it could be an all-stock combination which could be worth more than £120bn.”The combination would solve the Verizon Wireless problem but it seems to make little sense otherwise. It would solve the problem of Verizon buying out its partner’s stake which would cost tens of billions of dollars. That would come on top of the debt, over $20 billion, that the US company has taken on to build a fiber network to deliver broadband and TV its customer’s homes–a product called FiOS.

But Vodafone operates almost exclusively in Europe, although it has holdings in Asia. Verizon is a completely American company. That makes it difficult to see where the synergies and cost savings in a merger would be. A business combination between the two huge companies may occur, but its advantages for shareholders would be limited.

Douglas A. McIntyre