Vodafone announced yesterday that it planned to divest its entire 44 percent stake in French wireless operator SFR to Vivendi for about $11 billion.
The move was not entirely unexpected – Vodafone CEO Vittorio Colao has said he plans to sell off the company’s non-core minority assets – but the SFR divestiture has renewed questions about what Vodafone will do with its stake in Verizon Wireless.
Vodafone has already offloaded its stake in Softbank and China Mobile, prompting some to ask whether Verizon Wireless is next. Verizon Wireless is a joint venture between Vodafone and Verizon Communications. Vodafone owns a 45 percent minority stake and Verizon Communications holds the remaining majority shares.
Dan Hays, a director at management consulting firm PRTM, doesn’t think a sell-off is likely, at least in the short term. “I don’t think we’re likely to see a sale of their stake in Verizon Wireless any time soon,” he says.
Hays bases his prediction on several factors. Verizon Wireless is a profitable asset for Vodafone despite the fact that it hasn’t paid Vodafone a dividend since 2005. AT&T’s proposed acquisition of T-Mobile USA, which will take a competitor out of the market, could end up strengthening Verizon Wireless’ competitive position, as will Verizon’s recent deployment of LTE.
Hays also notes that it could be difficult for Vodafone to do an outright sale of its stake in Verizon Wireless because of the massive scale of the deal. “Frankly, a tremendous amount of capital would be required for someone to swallow Vodafone’s stake in Verizon Wireless,” he says. “I’m not sure there’s anyone out there with the guts to take over Vodafone’s stake in Verizon Wireless.”
Hays expects that Vodafone could start looking for a way out of Verizon Wireless as soon as 2013, but any near-term sale is unlikely.
Aapo Markkanen, an analyst at ABI Research, agrees. “My gut feeling is Vodafone will hold on to their Verizon Wireless stake for a bit longer,” he says. Markkanen says Verizon Wireless may reinstate dividend payments to Vodafone within two years.
Markkanen believes Vodafone’s next big divesture will not be Verizon Wireless, but Polkomtel in Poland. Vodafone holds a 24 percent stake in the Polish wireless operator.
Vodafone’s various minority holdings have been difficult to manage since the company lacks managerial control over the assets, leaving company shareholders frustrated.
Vodafone may be unlikely to sell off its stake in Verizon Wireless for now, but that could change over the long term, say Hays and Markkanen. Hays says its “likely” that Vodafone will sell off its stake in Verizon Wireless – but that’s over the long term, not the short term, so investors shouldn’t expect the status quo to change any time soon.
