A disposal of Verizon Communications Inc.’s fixed-line operations would clear the way for the company to merge its wireless and enterprise units with partner Vodafone Group Plc, analysts at Goldman Sachs Group Inc. said.
An agreement on a frequency purchase and marketing cooperation that Verizon’s mobile-phone unit reached in December with U.S. cable operators led by Comcast Corp. would make separating its divisions easier, the analysts, including Tim Boddy in London, wrote in a research report.
“The remaining wireless and enterprise businesses would have faster growth and a clear fit with Vodafone’s assets and strategy, making it a more attractive merger partner,” the analysts said in the report yesterday.
Vodafone, which is based in Newbury, England, owns 45 percent of New York-based Verizon’s wireless business, the U.S.’s largest mobile-phone operator. The companies are tightening a partnership after Verizon agreed last year to the first payout from the joint venture since 2005, providing the U.K. operator with a one-time dividend of 2.8 billion pounds ($4.34 billion).
The companies will focus on joint purchasing and service agreements for their business customers in the short term, the Goldman Sachs analysts said. Verizon Chief Financial Officer Fran Shammo said in November that the two carriers were moving from a financial partnership to a strategic relationship.
Peter Thonis, a spokesman for Verizon Communications, didn’t immediately return calls seeking comment outside business hours. Simon Gordon, a spokesman for Vodafone, declined to comment.
Vodafone rose as much as 2.1 percent to 181.1 pence and was up 1.9 percent at 10:50 a.m. in London. The stock has gained 2.9 percent in the past 12 months.
Under the alliance reached with with cable operators, Basking Ridge, New Jersey-based Verizon Wireless and the companies agreed to market and sell each other’s services, and Verizon Wireless also bought mobile-phone frequencies for $3.6 billion.
Verizon will offer cable-TV products in its retail stores and receive a percentage of revenue for every cable customer it signs up, while the cable companies will receive fees for each wireless customer they attract.
The U.S. Justice Department is investigating the deal over concerns it may reduce competition.
No More ‘Threat’
“Given that it no longer faces the threat of integrated cable competitors, Verizon could potentially spin off its remaining Consumer Wireline assets,” along with “large” pension and benefit liabilities, the Goldman analysts said.
Vodafone may generate a total return of 55 percent over the next two years, with 38 percent coming from a share-price increase and 17 percent from dividends, Goldman Sachs said. At the same time, free cash flow may rise to more than 10 billion pounds for the 2014 fiscal year from 7 billion pounds for the 2012 period.
Vodafone’s stock generated a return of 10 percent last year, making it the third-best performer in the 21-company Bloomberg Europe 500 Telecom Services Index. Shares including Deutsche Telekom AG, Royal KPN NV and Telefonica SA recorded losses in 2011.