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Hitting the acquisition trail may not be Vodafone's best call
by Sarah Miloudi on Sep 02, 2013 at 10:47
Vodafone investors should keep a keen eye on the mobile giant's plans for its Verizon windfall.
Although a deal to sell its 45% stake in Verizon Wireless has been on the cards for some time, fund managers and analysts have been quick to point out that hitting the acquisition trail might not be Vodafone's best call.
Henderson's Matthew Beesley, who heads the investment house's global equities team, said Vodafone has a 'chequered' history of snapping up operators, particularly in emerging markets, and its $130 billion Verizon windfall earmarks it as a bidder flush with cash.
'[Vodafone] has a chequered history in emerging markets. There were big issues in India and its foray into Japan was ill-fated.
'Everybody will know Vodafone is a cash rich buyer, and that will make it hard to extract great deals,' Beesley told Wealth Manager.
Beesley also said investors should consider the two unknowns about this deal; while it has been mooted for the past four or five years - and is well-timed given Vodafone's recent rise in value - the tax position on both sides of the Atlantic remains unclear and could eat into the cash shareholders hope to receive as a special dividend.
Moreover, Vodafone, which is headed up by Vittorio Colao (pictured), is fond of share buybacks, though most private investors are not.
Over the last decade it has spent £19.5 billion on buybacks and a further £1 billion in the last quarter alone, while grumbling investors will no doubt have preferred an increased dividend or a tender offer, or perhaps even investment directed towards building out its European operations to take advantage of its wad of cash during the recovery phase in the market cycle.
But investors also have to consider whether the Vodafone rump that's been left behind could become an acquisition target.
Victor Basta, managing director of Magister Advisors, technology industry M&A advisers, said that after emerging from its cocoon of relative safety, a 'predatory competitor' may be waiting to pounce.
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