The idea that US telecoms group AT&T might take a tilt at Vodafone has been gaining momentum recently.
Ever since Vodafone sold its stake in its US wireless joint venture to partner Verizon for $130bn - itself a long rumoured deal - the City has been tipping Vodafone as either predator or prey. Some think the UK mobile group might look at Liberty Global, others that it could fall into the hands of AT&T.
And now two more brokers have entered the fray ahead of Vodafone's first half figures next week. At Berenberg, analyst Paul Marsch issued a hold note with a 233p price target, saying:
Worsening top-line trends will place the scrutiny on Vodafone's ability to control margins, and to balance the requirement to adhere to guidance (for a slower rate of margin decline) against the need to recover the performance gap against key peers in important markets such as Germany. Vodafone management's strategic update on the day of the results will hopefully address this challenge, in addition to other issues.
Beyond the financials, we think most investors are holding on to their Vodafone shares given 1) they provide good exposure to expected consolidation in European mobile, even if only as a bystander (note that we are cautious on this point, believing that remedies in Germany will be material); and 2) the increasing likelihood of an approach by AT&T.
While rising political concerns over US eavesdropping may make European Commission approval of an AT&T move more challenging, if AT&T is serious about the European mobile opportunity, it is unlikely to be put off by such concerns.
A premium offer from AT&T remains a possibility, even if a successful deal is no slam-dunk – the prospect of 265-275p per share remains enticing.
Meanwhile Bernstein analysts raised their price target on Vodafone from 230p to 250p, factoring in a 75% chance of a deal with AT&T. They said:
Operationally and strategically, both AT&T and Vodafone are experiencing a rough patch. The possible mega merger between the two that could be a welcome distraction for both appears to have the same momentum as the Verizon/Vodafone deal earlier this year.
In the market Vodafone shares have added 1.8p to 230.05p.
