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Vodafone Narrows Market-Value Gap to Verizon on U.S. Venture

Vodafone Group Plc (VOD) narrowed its market-value gap to Verizon Communications Inc. (VZ) as investors consider a merger or an agreement over their U.S. wireless venture to be increasingly likely.

Vodafone has risen 11 percent since March 5, when Bloomberg reported that Verizon is working to resolve their relationship this year, and the companies have discussed a range of options including the idea of the U.S. carrier acquiring 100 percent of the Verizon Wireless venture.

Verizon is eager to take full ownership to win more control over its most profitable division, people familiar with the matter have said. Vodafone could get $115 billion for its 45 percent stake in the venture, which has become the largest U.S. wireless service provider, according to analysts.

“All U.S. paths lead to value for Vodafone shareholders,” Emmet Kelly, director of European telecommunications for Bank of America Merrill Lynch, wrote in a note today. “The most likely scenario would see Vodafone shareholders receive a premium into a Vodafone-Verizon merger. Alternatively, Vodafone could sell its Verizon Wireless stake.”

Value Divergence

Vodafone, the second-largest wireless service provider behind China Mobile Ltd. (941), rose 2 percent to close at 187.20 pence in London, giving the carrier a market value of 91.6 billion pounds ($139 billion). Verizon climbed 0.3 percent to $49.16 at the close in New York, valuing the company at $141 billion.

The Sunday Times reported yesterday that Newbury, England- based Vodafone is leaning toward a clean break from the U.S., and a deal could be reached as early as summer, citing “investors as well as industry and banking sources” it didn’t identify. Vodafone may get as much as $135 billion by selling its Verizon Wireless stake, the newspaper said.

A Vodafone spokesman declined to comment.

Verizon, which has benefited from steady growth of its U.S. wireless business, has jumped 25 percent in the past 12 months, about triple the increase in Vodafone’s stock, which was weighed down by Europe’s sagging economy. In December, Verizon’s market value exceeded Vodafone’s for the first time in a decade.

Vodafone has reported declining service revenue for the past two quarters as European customers grapple with slowing economies by cutting spending. The company is eliminating jobs, including 1,700 positions in Italy and Spain. Chief Executive Vittorio Colao is increasingly relying on operations outside Europe, such as Africa and the U.S.

To contact the reporters on this story: Amy Thomson in London at athomson6@bloomberg.net; Scott Moritz in New York at smoritz6@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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