Why is AT&T trying to get in on the Vodafone Verizon deal?
According to the Financial Times’ Alphaville blog, Dow components Verizon Communications (NYSE: VZ ) and AT&T (NYSE: T ) are together mulling the acquisition and subsequent breakup of Vodafone (NASDAQ: VOD ) . According to the report, a potential offer would award Vodafone shares a 40% premium to their current price in a transaction with an enterprise value (i.e., equity value plus net debt) of $245 billion. That would surpass AOL’s acquisition of Time Warner in 2000, so the possibility of such a deal is stirring up some excitement — nowhere more so than at Barclays. The bank is reportedly working on the deal, and a successful transaction of this size would be a huge fee bonanza.
Here’s the logic and mechanics behind the transaction according to the Financial Times:
- “Verizon buys back Vodafone’s 45% stake in Verizon Wireless. Verizon has made no secret that it seeks full control of the joint venture. For its part, Vodafone is not opposed to ceding the stake: In February, CEO Vittorio Colao told The Wall Street Journal he didn’t know whether the relationship would be the same in a year and that Vodafone has an open mind “on everything.” However, this could fairly describe the company’s stance on the joint venture since plans for a public offering collapsed in 2003.
- AT&T takes the non-U.S. assets in a bid to become a global wireline provider and a more effective competitor against Verizon Wireless domestically.”
What is a “global wireline provider” in the age of increasing wireless devices?
Wireless penetration growth rates are already exceeding the rates in developed countries.
According to the ITU (International Telecom Union), The Little Data Book 2012:
On the mobile side, roaming agreements already take care of having a global wireless footprint without having to invest in infrastructure and spectrum.
Global wireline providers are already losing revenue.
Add that to the fact that content companies such as Facebook and Google are a continuous threat in relegating telecom companies to becoming wireless data pipes.
Why would AT&T want to buy into a wireline business model on a global scale?
How would buying into a global wireline business help AT&T compete domestically with Verizon Wireless?