Shares of Vodafone dropped 2.7% last week after analysts warned the company may make a bid for Liberty Global.
With the telecom industry consolidating, Vodafone “needs to own more fixed line infrastructure” and Liberty “would be an obvious fit,” analysts at Bank of America were quoted as saying in an article published in The Telegraph.
Such a buyout would be “financially brave requiring increased leverage and significant equity issuance,” the firm added. Vodafone should capitalize on its current strong share price and “move sooner rather than later,” BoA said. “Right now, low interest rates and telco valuation highs mean that funding conditions are optimum.”
The BoA analysts also cautioned Vodafone’s investors that they were underestimating Vodafone’s costs of bidding for mobile phone spectrums and that the company could be “on the hook” for as much as $5 billion in the forthcoming Indian spectrum auction.
Vodafone last year pocketed $130 billion following the sale of its 45% stake in U.S.-based mobile operator Verizon Wireless. The deal consisted mostly of cash and shares in Verizon, with Verizon forking over $58.9 billion in cash and $60.2 billion in stock. In addition, Verizon issued $5 billion in notes payable to Vodafone; sold its 23% interest in Vodafone Italy for $3.5 billion, thereby providing Vodafone with full ownership of Vodafone Italy; with the remaining $2.5 billion of the transaction value a combination of “other considerations.”
Vodafone late last year plans to launch an enterprise-focused mobile virtual network operator in the U.S. tapping into T-Mobile US’ network.
